Primary functions of banks - 15 Minutes Seminar Notes

 Primary functions of banks - 15 Minutes Seminar Notes

Granting loans and advances

Loans:

• Banks provide loans to a businessman and others. The loans are provided for a longer period of time for 1 year and more.  
• The borrowers can use entire ammonic sanctioned or can withdraw in instalments. Interest is charged on the amount sanctioned.The loans are as follows
  

1. Short term loans-Short term loans are for a period up to 1 year to meet working after requirements of the borrower.
   
2. Medium term loans-Medium term loans are for a period of 1 year to 5 years to meet working capital as well as fixed capital requirement of the borrower.
   
3. Long term loan- Long term loans are for a period of 5 years or more to meet long term capital requirements of the borrower.

Advances : 

• Advances small term fund provided to Business man to satisfy different financial requirements of the business. 
• Advances are provided for the shorter period of less than 1 year. The advances are in the form of cash credit, overdraft and discounting of bills etc.Advances are as follows
  
• Cash credit - The cash credit advances are provided to current account.It provides working capital for short period of time. 
• Interest rate is higher on cash credit. Separate cash credit account has to be maintained by the borrower.
  
• Overdraft - This facility is offered to current account holders to meet their working capital requirements. The period can very from 15 to 60 days. Interest is charged on actual amount withdrawn. 
• No separate account is maintained, and entries are shown in current account.
  
• Discounting of bills of exchange - The drawer of bills of exchange or beneficially can discount the bill with bank and obtain an advance .
• On the due date of the bill, the bank will recover the amount from the drawee.

 

Presented By,

Meenushree

Banking Student

Magme School Of Banking