Definitions of lending

• Disposing of money or property with the expectation that the

same thing (or an equivalent) will be returned . Credit is the
provision of resources (such as granting a loan) by one party to
another party where that second party does not reimburse the
first party immediately, thereby generating a debt, and instead
arranges either to repay or return those resources (or
material(s) of equal value)
• Lenders - A loan is a type of debt. Like all debt instruments, a
loan entails the redistribution of financial assets over time
• To provide money temporarily on condition that the amount
borrowed be returned, usually with an interest fee.
 Principles of good lending

Principles of good lending

Basic principles General principles

 
• Basic principles
The success of banks depends upon the basic
principles. These are the prime principles in
lending as well as investment
• Safety
• Liquidity
• Profitability
•  General principles
• Banks are following certain general principles in
order to make a safe lending along with the basic
principles . that are explained in detail in the
following paragraphs. 
• Purpose of loan Safety
• Principle of Security
• Principle of National interest and suitability
• Principle of diversification of risks
 LATEST LENDING RATES (BASE RATES)

PUBLIC SECTOR BANKS

State Bank of India                 7.50%
Federal Bank                 7.75%
State Bank of Mysore             7.75%
Corporation Bank                 7.75%
Bank of India                 8.00%
Punjab National Bank             8.00%
Bank of Baroda                 8.00%
Union Bank                 8.00%
• Central Bank of India             8.00%
Indian Bank                 8.00%
Uco Bank                8.00%
IDBI Bank                 8.00%
Indian Bank                8.00%
Canara Bank                 8.00%
Vijaya Bank                 8.25%
Indian Overseas Bank     8.25%
• PRIVATE SECTOR BANKS

HDFC Bank                 7.25%

ICICI Bank                 7.50%
DCB                 7.75%
Dhanalxmi Bank          7.00%
Bank of Rajasthan       8.00%
Karur Vysya Bank       8.50%
 PRIORITY SECTOR LENDING

The Government of India through the instrument of

Reserve Bank of India (RBI) mandates certain type of
lending on the Banks operating in India irrespective of
their origin. RBI sets targets in terms of percentage
(of total money lent by the Banks) to be lent to
certain sectors, which in RBI's perception would not
have had access to organised lending market or could
not afford to pay the interest at the commercial rate.
This type of lending is called Priority Sector Lending.
Financing of Small Scale Industry, Small
 Principles of lending & Priority sector finance in Banks

• Cardinal principles of lending are Safety and liquidity , Profitability

and diversifications of risks and Productive purpose and security
• Liquidity with a banker means Cash on Hand, Cash and Bank
balances and Short term current assets to convert into cash
• Customer profitability analysis means Assess the profitability of
customer’s business
• Banker can reduce risk in lending to a borrower by ensuring that
there will be no default on account of lack of liquidity and lack of
willingness to pay on the part of the borrower
• In banker’s parlance, credit risk in lending refers to default of
repayment by a borrower
 Priority sector comprise
• 1. Agriculture
• 2. Small scale industries
• 3. Small road and water transport operators (owning upto 10 vehicles).
• 4. Small business (Original cost of equipment used for business not to exceed Rs
20 lakh)
• 5. Retail trade (advances to private retail traders upto Rs.10 lakh)
• 6. Professional and self-employed
• 7. State sponsored organisations for Scheduled
• 8 Education
• 9. Housing].
• 10. Consumption loans
• 11. Micro-credit
• 12. software industry (having credit limit not exceeding Rs 1 crore from the
banking system)
• 13. food and agro-processing sector having investment in plant and machinery
up to Rs 5 crore.
• 14. Investment by banks in venture capital
 Type of investments made by banks are reckoned under priority sector

• State Financial Corporations (SFCs)/State Industrial

Development Corporations (SIDCs)
• Rural Electrification Corporation (REC)
• NABARD .
• Small Industries Development Bank of India (SIDBI) .
• The National Small Industries Corporation Ltd. (NSIC)
• National Housing Bank (NHB)
• Housing & Urban Development Corporation (HUDCO)
 DIFFERENTIAL RATE OF INTEREST SCHEME

• Government of India had formulated in March,

1972 a scheme for extending financial
assistance at concessional rate of interest @
4% to selected low income groups for
productive endeavours initially by public sector
banks and then by private sector banks also .
 Purpose
• Persons belonging to SC/STs, Adivasis engaged in agricultural operations and/
or allied activities
• Persons engaged in collection of forest products, fodder and selling these in
markets. 
• Persons engaged in Village and Cottage Industries on a very small scale.
• Indigent students aspiring to pursue higher studies. 
• Physically handicapped persons.
• Institution of physically handicapped for their productive activities.
• Orphanages, Women's Homes where saleable goods are made. 
• State Level Corporations working for welfare of SC/ST.
• Co-operative Societies, large sized multi-purpose societies organised specially
for the benefit of tribal population in areas identified by Government of India.
• Eligibility
• Loans are granted to any person whose :
• Family income from all sources is not more than Rs.7,200/- p.a.
in metropolitan/ urban/ semi-urban areas or Rs.6,400/- p.a. in
rural areas.
• Land holding does not exceed 1.25 acres of irrigated land or
2.5 acres of dry land. Land holding criteria does not apply to
SC/ST borrowers.
• Security
• Hypothecation of assets created out of the loan only. Collateral
security or third party guarantee should not be taken.
• Amount of Loan
• Composite loan upto Rs. 15,000/- & housing loan upto Rs.20,000/- .
• Rate of Interest
• 4.00% p.a
• Margin
• No margin money is required to be provided by the borrower
• Repayment
• Repayment period for term loan is up to 5 years
• Target Under the Scheme
• 1% of the previous years advances should be granted under the scheme.
• Out of total DRI advance 40% should be granted to SC/ST beneficiaries and
not less than 66.66% Of the DRI advances should be routed through Rural
and Semi-urban branches.
 GEOGRAPHICAL DIVERSIFICATION

• The two principal objectives of diversification

are
• improving core process execution, and/or
• enhancing a business unit's structural position.
 Forms and Means of Diversification
• Diversification typically takes one of three forms:
• Vertical integration – along your value chain
• Horizontal diversification – moving into new
industry
• Geographical diversification – open up new
markets
•  
• Means of achieving diversification include internal