Page 123 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes 7.10 Keywords

Advances: Prepayment received for goods or services to be rendered.
Acceptance: A consent given by the person on whom a bill of exchange is drawn, to pay it when
due according to the terms of the acceptance.
Car loan or auto loan: A personal loan to purchase an automobile.
Cash credit: A short-term cash loan to a company.

Collateral: It is the additional security given for taking a loan. It is in addition to the prime
security given for the loan.
Education loan: The educational loan or student loan is a good banking product for the young
and growing Indian masses.
Home loan: A loan taken to purchase or construct a home.
Liquidity/Marketability: The degree to which an asset or security can be bought or sold in the
market without affecting the asset’s price.
Loan: A loan is a type of debt. Like all other debt instruments, it is to be repaid with interest as
per agreed terms.

Loan against shares: A loan, which is secured by the pledge of shares.
Loan syndication: Making arrangement for loans for borrowers. It should not be confused for
granting of loans.

Margin money: It is like a security deposit retained by the bank till the loan is fully settled.
Money at call: Money loaned for which repayment can be demanded without notice.
Money at short notice: Money loaned for which repayment can be demanded by giving a short
notice.
Mortgage loan: A loan to finance the purchase of real estate, usually with specified payment
periods and interest rates.

Overdraft: The word overdraft means the act of overdrawing from a bank account. In other
words, the account holder withdraws more money from a bank account than has been deposited
in it.
Personal loan/Consumer loan: Consumer loan granted for personal (medical), family (education,
vacation), or household (extension, repairs, purchase of air conditioner, computer, refrigerator,
etc.) use, as opposed to business or commercial use.
Repayment holiday/Moratorium period: Whenever a loan is taken especially for acquiring
fixed assets, the repayment does not start immediately.
Secured loan: A secured loan is a loan in which the borrower pledges some asset (e.g., a car or
property) as collateral for the loan, which then becomes a secured debt owed (payable) to the
creditor who gives the loan.

7.11 Review Questions

1. Discuss various types of loans granted by commercial banks.
2. Describe the characteristics of commercial bank loans.

3. Explain the cardinal principles of sound bank lending.

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