What Are The Principles Of Bank Advances, Define At Least Three Of Them?


3 Answers

js rao Profile
js rao answered
Easy to remember - It is three "C"s  (1) Character (2) capital (3) capacity
Banker relies on the character, integrity of the person and next is how much is the applicant's own stake and finally whether he is capable of undertaking the activity and is able to pay.
These are age old principles and stood the test of time.
J.Srinivasa Rao,
Ex-Senior Management Banker
Chips Ters Profile
Chips Ters answered

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Hassan Raza Profile
Hassan Raza answered
Principle of Safety:

The banker must be careful and ensure that his depositor's Money is advanced to safe hands where the risk of loss does not exist. The elements of character, capacity and capital can help the banker in arriving at conclusion regarding the safety of advance allowed by him. There is no substitute for honesty integrity and straight forwardness. The banker should consider the past record of the customer before making an opinion. The management ability of the customer, in order to Judge the capacity, a banker must have critical look at the past and present record of the businessman. Capital refers to the party's own resources and financial position these must be examine carefully by the banker.

Principle of Liquidity:

Liquidity means the prompt repayment of loans and advances made to the borrower. The bank must ensure that the money he is lending is not blocked for a long time, and the borrower's are in' such a financial position as to pay back the entire amount outstanding against them on a short notice. If the borrower asks for an advance for the purchase of costly house, the banker should refuse, because it should not be possible for him to repay when the banker wants his customer to repay the loan on a short notice. Hence, the banker must adhere to the consideration of the principles of liquidity very carefully.

Principle of Dispersal:

The dispersal of financing should be wide enough to include all important sectors of the economy. The banker should never use all or a major proportion of its capital for financing only a few businesses or sectors. He should provide finances to a large number of businesses and customers belonging to different economic sectors.

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