Cardinal Principles Of Lending Saikat S
Cardinal Principles of lending:
A bank is an institution which is primarily seen as a body that accepts monetary deposits from its customers (general public), looks after their money, offer them some beneficial services such as cheque books to make payments and lends money to other public (borrowers). Now lending money to someone comes with some inherent risks especially when a bank uses its depositors’ money to lend. To put it simply a bank’s major operation is to borrow money from depositors and lend money to different kind of borrowers. Since the primary source of funds for a bank is its depositors’ money which are repayable as and when demanded by the depositors, it is extremely important for a bank to be cautious while lending money to customers. Therefore, the banker should follow the cardinal principles of lending while lending money and make sure all the norms of sound financial lending are practised.
To put it simply banks make money by lending money to borrowers, so it becomes very important for banks to follow the cardinal principles of lending. When these principles are followed, they ensure the safety of banks’ funds and that in turn provides assurance to its depositors and shareholders. In the process, banks also make profits and grow as financial institutions. Sound lending principles by banks, can also help the economy of a country to grow and promote expansion of banking habit in rural areas.
The cardinal principles of lending are as follows:
A. Safety
B. Liquidity
C. Profitability
D. Purpose
E. Diversification of risks
F. Security
We would now discuss about each of the principles in details.
A. Safety:
The most important principle of sound lending is safety. The banker, while lending, has to ensure that the loan is provided to the right depositors who would repay the amount with due interest and make the payment on time. It is the banker’s duty to ensure that the money lent remains safe and comes back to the back ultimately. Safety is the first
A bank is an institution which is primarily seen as a body that accepts monetary deposits from its customers (general public), looks after their money, offer them some beneficial services such as cheque books to make payments and lends money to other public (borrowers). Now lending money to someone comes with some inherent risks especially when a bank uses its depositors’ money to lend. To put it simply a bank’s major operation is to borrow money from depositors and lend money to different kind of borrowers. Since the primary source of funds for a bank is its depositors’ money which are repayable as and when demanded by the depositors, it is extremely important for a bank to be cautious while lending money to customers. Therefore, the banker should follow the cardinal principles of lending while lending money and make sure all the norms of sound financial lending are practised.
To put it simply banks make money by lending money to borrowers, so it becomes very important for banks to follow the cardinal principles of lending. When these principles are followed, they ensure the safety of banks’ funds and that in turn provides assurance to its depositors and shareholders. In the process, banks also make profits and grow as financial institutions. Sound lending principles by banks, can also help the economy of a country to grow and promote expansion of banking habit in rural areas.
The cardinal principles of lending are as follows:
A. Safety
B. Liquidity
C. Profitability
D. Purpose
E. Diversification of risks
F. Security
We would now discuss about each of the principles in details.
A. Safety:
The most important principle of sound lending is safety. The banker, while lending, has to ensure that the loan is provided to the right depositors who would repay the amount with due interest and make the payment on time. It is the banker’s duty to ensure that the money lent remains safe and comes back to the back ultimately. Safety is the first