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Loans and Advances Bbm Project

Loans and Advances Bbm Project

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Published by Ramesh Ravi

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Published by: Ramesh Ravi on Feb 17, 2011
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02/19/2014

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Analysis of loans and advances
Page 1
MEANING OF FINANCE
Finance is the set of activities dealing with the management of funds. More specifically, it is the decision of collection and use of funds. It is a branch of economics that studies the management of money and other assets.Finance is also the science and art of determining if the funds of an organization are being used properly.Through financial analysis, companies and businesses can take decisions and corrective actions towards thesources of income and the expenses and investments that need to be made in order to stay competitive.Finance is the life blood of business. It flows in mostly from scale of goods and services. It flows out for meeting various types of expenditure. The activating element in any business which may be on industrial or commercial undertaking is the finance.Business finance has been defined as those activities which have to do with the provision and managementof funds for the satisfactory conduct of a business. Business finance is defined as that business activitywhich is concerned with the acquisition and conservation of capital funds in meeting the financial needs andoverall objectives of business enterprises.So we can say business finance is mainly developed around three major objectives.Firstly, to obtain an adequate supply of capital for the needs of the business,Secondly, to conserve and increase the capital through better management,Thirdly, to make profit from the use of funds this is an overall objective of a business enterprise.Before industrial revolution, finance was not of much importance. The methods of production were simple.For example, the artisan used to work in open small hut. He had simple tools mostly made by himself.Labour at that time was more important than capital and finance did not pose any problem. Production inthose days was, therefore labour intensive.
*Information has been collected from the websitewww.google.com 
 
Analysis of loans and advances
Page 2
INDIAN FINANCIAL SYSTEM
The financial system or the financial sector of any country consists of specialized and non-specializedfinancial institutions of organized and unorganized financial markets of financial instruments and services,which facilitate transfer of funds procedures and practises adopted in the markets and financialinterrelationship, are also part of the system. The structure of a financial system in any economy is asfollows:
UNORGANISED MARKETS
In these markets consist of many lenders, indigenous bankers, transfers and private chit funds etc. whoseactivities are not controlled by RBI. Recently the RBI has taken steps to bring private function companiesand chit funds its strict control but using non banking financial companies directions in 1998.
ORGANISED MARKETS
In these markets there are standardized rules and regulations by Reserve Bank of India or other regulatory bodies. The organized markets can be further classified into two. They are:1)
 
C
apital markets.2)
 
Money markets.
CAPITAL MARKET
: It is a market for long term funds which have a long or indefinite maturity.
C
apitalmarket further divided into three mainly:a)
 
Industrial Security market:
It is a market for industry security namely equity shares or ordinaryshares, preference share, debentures or bonds. It is a market where industrial concern raises their capital or debt by assuring appropriate instruments. It can be further subdivided into two. They are:
y
 
Primary market: It is a market for new issue or new financial claims.
y
 
Secondary market: It is a market for existing securities and those already issued and quoted instock exchange
.
 
*Information has been collected from the book A Hand book of banking by N. S. Toor 
 
Analysis of loans and advances
Page 3
 b)
 
Government Securities Market:
It is also called gilt-edged securities market. It is a market wheregovernment securities are traded (long term securities)
FINANCIAL INSTRUMENTS
A financial instrument refers to these documents which represent financial claims on assets.Financial instrument can also be called financial securities. These instruments are classified into
a)
 
PRIMARY SECURITIES:
Shares and debentures issued directly to Public.
 
 b)
 
SECONDARY SECURITIES:
These securities issued by some intermediaries ex; UTI andMutual fund again these securities may be classified on the basis of duration as follows.
y
 
Short Term Securities:
W
ithin one year ex; bills of exchange.
 
y
 
Medium Term Security:
Maturity period between 1-5 years ex; debentures.
y
 
Long Term Securities:
Maturity period more than 5 years ex; Gilts.
 FINANCIAL SERVICES
a)
 
MERCHANT BANKING:
A merchant banker is a financial intermediary who helps to transfer capital from those it to those who need
 
it.
 b)
 
LOAN SYNDICATION:
Much number of banks joins together and forms a syndicate to provideloan as big sum to corporate
.
 c)
 
LEASING:
A lease is an agreement under which a company acquires a right to make use of capitalassets like machinery for agreed period in return for periodic payment of rentals
.
 
d)
 
HIRE PURCHASE:
It is an agreement relating to transaction in which goods are let on hire.
e)
 
FACTORING:
It is an agreement under which a financial intermediary assumes the credit risk inthe collection of 
 
 book debt passes for its client.
 f)
 
VENTURE CAPITAL:
A venture capitalist finances a project based on the potentialities of newinnovative projects for new entrepreneurs
.
 g)
 
MUTUAL FUND:
A mutual fund refers to a fund raised by a financial services company by pooling the savings of the public
.
 

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