Page 106 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 7: Loans and Advances

The Products available with Individual Banks Notes

There are many types of loan products available for business community. The loans are structured
depending upon the need of the client and the product available with the lending bank.

Retail Loans

This type of lending is meant for very small entrepreneurs as well as individuals who are
engaged in some economic activity. Loans are given on the strength of the earnings of the
borrower with an eye on the repaying capacity.

Loans for Purchase of Automobiles/Consumer Durable Items

Most banks nowadays have products for financing the purchase of automobiles and other
consumer durable items. The quantum of loan granted is generally determined by the repayment
capacity of the borrower.

Notes Most banks apply their own method to calculate the maximum monthly repayment
capacity of a person.
Thus, a loan for which Equated Monthly Instalment (EMI) is within the capacity of borrower is
considered the outer limit for a person. The bank gladly finances to this extent for the purchase
of an automobile or any other consumer durable item.
Banks judge the monthly income of borrower with reference to:

1. The latest salary certificate from the employer (in case of employees), or
2. The last year’s income tax return (in case of self employed persons).
Some important points to remember for the borrower:
1. While considering a loan of such nature, check whether the interest is payable on the
entire amount for the entire period or on the outstanding amount only.
2. Check the rest, i.e., the frequency at which the interest will be debited or charged to his
account. Reject any frequency less than a quarter.
3. Mostly there are hidden charges called service charges or appraiser charges, which inflate
the cost to borrower. The borrower should carefully check these before taking a loan.

4. The documents should be read carefully to check if there are such clauses and conditions
which tilt the balance heavily in favour of the bank/finance company.

Self Assessment

Fill in the blanks:
5. RBI’s view ………………………. have access to organized lending market.

6. Financing of priority sectors is done at a ………………………… rate of interest.
7. …………………………….. lending is the basis of bread and butter of Indian banking.

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