Professional Documents
Culture Documents
Banking
Mishu Tripathi
Assistant Professor-Finance
History of Banking in India-Phase I
• Three presidency banks were established in Calcutta
(1806) in Bombay (1840) and in Madras (1843)
1. Current Deposits
2. Savings Deposits
3. Term Deposits
Current Deposits/Current Account
majority.
4. Partnerships Firms
6. Companies
7. Clubs, Societies, Associations, Committees, Schools etc
8. Trusts
9. Executors
10. Administrators
• Identity Proof
• Address Proof
• The Character
• Competence and
• Capital
Character: Will he repay the loan?
• In banking parlance, character is usually
associated with the record of past payments of
the party with the banker other creditors.
• If past financial record is not good, it is better
to drop the proposal even if good security is
available.
• A banker can bear with borrower who is not
able to pay because of circumstances beyond
his control but he cannot do with a borrower
who is not willing to pay.
• In the absence of past record one has to see
other traits of a borrower like frankness,
reasonableness, patience, attitude towards risk
and other entrepreneurial qualities.
• An experienced banker can draw conclusions
during the course of an interview.
Competence: Can he repay the loan?
1. Managerial Competence
• It is a decisive factor influencing the failure or
success of an enterprise.
• Fluctuating availability of supplies, changing
technology, rising prices, shifting tastes and
stiff competition enlarge the role of
management decision in success.
• In the era of competition the evaluation of the earning
process and projections is not very reliable and the tendency
to depend merely on the analysis of financial statements
may not be free from risk unless supplemented by
managerial competence.
• No lender can possibly foresee all the future circumstances
that will affect the fortune of the borrower. But if he is
satisfied by the superior ability of the management, he can
reduce the risk to a great extent.
• Appraisal of management is the touch-stone of credit
analysis.
2. Technical Competence
Capital: What is the owner’s stake in the
business?
Capital indicates the financial resources available
at the borrower‟s end. From the banker‟s point of
view these resources can be classified into three
divisions, namely, margin, principal security and
collateral.
Margin
• Margin is the amount invested by the borrower
himself and is asked for, for providing protection
to bankers against a possible decline in value.
Thus, margin indicates the owner‟s stake, which
very often governs his motivation.
• A sound banking proposition requires the
presence of some security in order to cover the
risk in lending.
• Such security can be of two types: (a) Principal
security and (b) Additional security, popularly
known as collateral.
The Principal Security
• It is the main security consisting of goods,
machinery etc created out of the funds lent.
• It is quite natural that bank will like to create
charge over such security in order to secure
their advance. The charge can be in the form of
pledge, hypothecation, assignment, mortgage,
etc. If no charge is obtained, the advance can
be considered as clean advance.
A good security should possess four
qualities, namely:
• Marketability
• Stability of value
• Transferability of ownership
The Collateral
• When the principal security does not
adequately cover the future risks, bankers do
insist for collateral as a measure of protection.
• The traditional banking laid lot of emphasis on
collateral often paying little attention to other
factors. But for small borrowers or small scale
industries the approach suggested by the
regulators is to go for need based lending
rather than security based lending so that a
good entrepreneur should not be denied the
finance in the absence of security.
• No banker should begin with hypothesis that
the repayment of loans shall come by the sale
of collateral; rather it should come out of the
generation of surplus.
• If the collateral is available, it must be insisted
upon as it will discourage the borrower from
fraud and also create motivation.
Material
This head include not only availability of raw
material but also other infrastructural facilities
like skilled labour, power or fuel, water,
transport facilities, appropriate technology and
proper location.
Raw Material
• Raw material is one of the basic requirements
of an industrial enterprise.
• The availability of raw material whether
imported or indigenous must be properly
assessed.
• A prudent lender shall always ensure that the
enterprise will be able to get the required raw
material at competitive rates.
Skilled Labour
There is no dearth of unskilled labour in any
part of the country. But some enterprises
require highly skilled labour, which may not
be available at all places.
Power and Fuel