CHAPTER- IINTRODUCTION OF LOAN ACTIVITIES
Any amount borrowed or lent is called loan. If money is borrowed it is debt of businessands if loan is given, it is receivable for the business.
Loan is a method of lending under which bank gives credit to a borrower for a fixed period and for a specific purpose. Loan are promises for future payment, they have to be repaidin periods beyond a year and are, therefore long term liabilities.
In other wards "when a banker makes an advances in a lump sum which can not be paidwholly or partly and which the customer has permission to withdraw subsequently, it is called aloan."
Profit is the pivot on which the entire business activity roates. Banking is essentially a business dealing with money and credit. Like every other business activity. Banks are profitoriented. A bank invests its funds in many ways to earn income. The bulk of its income isderived from loans and advances.
Banks make loans and advances to traders, businessman and industrialist against thesecurity of some assets or on the basis of the personal security of the borrower. In either case, the banks run the risk of default in repayment. Therefore, banks have to follow a cautions policy andsound lending principles in the matter of lending. Banks in India have to consider the nationalinterest along with their own interest while determining the lending policy.
Many a time a borrower needs funds for fixed assets or non-respective type of activitiesand thus seeks money from the bank that is withdrawn in one lump sum. The loan amount isnormally repaid in installments. Loan may be short-term, medium-term or long-term