secur or may grant such advance on he personal secur ofthe borrows. Toe culaner
he meds and to repay by means of
pully ofthe central bank.
Advantages of Loan System
1. Financial isepline on the Borower, As the ue of repayment of he Jan or
* Sanctioned, the banker gels an opportunity of automatieally reviewing the Ioan
fecount Unsatisfactory loan azouns maybe ctconnued a he deren of he
3. Prfablly. The sytem is comparatively spl, Interest accrues to the bank on
‘the entire amount lent to a customer.
Drewbacks
4 tty, very tes loa required tito be ngpted with he banker To
‘excess of thelr exact requirements to provide for
Loans and Advances 18.7
‘TYPES OF LOANS
Banks grant loans for different periods—short, medium and long, and for diferent purposes,
Broadly, the loans granted by banks are classified as follows :
Bank Loans
Shortterm —_Mediim and ridge Composite Personal
Teans Longterm Loans =——Loan Troan oan
‘Banks obtain refinance on term loans sanctioned by them from the refinancing institution
vtz., Small Industries Development Bank of India, Nation: al Hoesing Banke and NABARD,
are usually secured by the tanglble assets like land, buildings, plant and machinery, te
Bridge Loans
[Bridge loans are essentially short term loans which are granted to industrial undertakings to
ential needs during the period when formalities for avalling of the
from the capital market. These loans are granted by banks or by
financial smselves and are automatically repaid out of amount ofthe term loan,
or the funds ralsed in the capital market
In April 1995, Reserve Bank of India banned bridge loans granted by banks and financial
Institutions to all companies. But in October 1995, Reserve Bank permitted the banks 10
sanction bridge loans/ Interim finance against commitment made by a financial institution or
another bank where the lending institution faces temporary liquidity constraint subject to the
following conditions :
consent t of the other bank/financial institution which has sanctioned a