DISCUSS THE DIFFERENT FORMS OF LENDING BY A BANKER
Ans. The various types of loans offered by banks are detailed below:
1. Consumer Credit: Banks grant credit to households in a limited amount to buy some durable consumer goods such as television sets, refrigerators, etc., or to meet some personal needs like payment of hospital bills etc. such consumer credit is made in a lump sum and is repayable in instalments in a short time. Under the 20-point program, the scope of consumer credit has been extended to cover expenses on marriage, funeral etc., as well.
2) Miscellaneous Advances: Among other forms of bank advances there are pack- ing credits given to exporters for a short duration, export bills purchased/discounted, import finance-advances against import bills, finance to the self-employed, credit to the public sector, credit to the cooperative sector and above all, credit to the weaker sections of the community at concessional rates.
3) Overdraft Facilities: In this case, the depositor in a current account is allowed to draw over and above his account up to a previously agreed limit. Suppose a businessman has only Rs. 5,00,000/- in his current account in a bank but requires Ra 7,00,000/- to meet his expenses. He approaches his bank and borrow the additional amount of Rs. 2,00,000/-. The bank allows the customer to overdraw his account! through cheques. The bank, however, charges interest only on the amount over. drawn from the account. This type of loan is very popular with the Indian business men.
4. Term Loans: Banks give term loans to traders, industrialists and now agricultur. ists against some collateral securities. Term loans are so-called because their matu rity period varies between 1 to 10 years. Term loans, as such provide intermediate or working capital funds to the borrowers. Sometimes, two or more banks may jointly provide large term loans to the borrower against a common security. Such loans are called participation loans or consortium finance.
5. Retail Loans: Retail Loans are the loans acquired to buy an asset or property These are specified loans rather granting to individual consumers, underwrite loans to other lenders. Retail loans are offered by financial institutions in wide variety of forms. They are Home Loan, Car, Loan, Education Loan, Personal Loan and Credit Card
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a) Home Loans: Housing being one of the fundamental needs of life. A person re quires Home for his family. Housing Loans are provided by the financial institu. tions for the purpose of construction or purchase of a new home. National Housing Bank (NHB) was set up with the support of RBI for coordinating and development of housing finance schemes. Housing Loans are provided by LIC, SBI, UTI and other financial Institutions. The Central Government has taken steps towards "Hous- ing for All", in this connection it has started The Pradhan Mantri Awas Yojana (PMAY). This scheme covers housing for weaker sections and middle-income sec- tion people.
b) Car Loans: Car Loan or Vehicle loan is the facility provided by the banks to the customers allowing them to pay the value of the car in instalments. The whole amount taken by the customer will be processed in a regulated manner directly to the vendor. The payment of instalments includes interest amount determined by the bank office from time to time. This type of loan is either secured loan or unse- cured loan. These loans are granted to the salaried employees and self-employed individuals after providing necessary documents. The minimum age of obtaining the car loan is 21 years and a continued service of at least one year in an organisation with an annual income of Rs. 2.5 lakhs. In general, the loan will be a secured loan, in case the customer fails to pay the instalments due the lender will repossess the vehicle.
c) Education Loan: Education loan is a student friendly designed loan. These loans given to the students who are unable to continue higher education in India and abroad due to lack of cash. These loans aim at providing financial support to meritorious students for pursuing higher education, such as Graduation, Post-Graduation, Professional courses and other relevant vocational courses as prescribed by the granting authority. Financial support is granted to the extent of Rs.10 lakhs for studies in India and Rs 25 lakhs for studies in abroad respectively.
d) Personal Loans: Personal loan is an unsecured loan granted by the banks to meet personal needs. Personal Loan is provided to the customer with an account in a specified bank. Personal loans can also be granted for the purpose of house repairs, renovations, wedding, on the basis of loan eligibility with a minimal document on the prevailing rates of interest. Personal loans are provided with a term between 1 to 3 years repayment period.
e) Credit Card: Credit Card is a magnetic Strip Card issued by the bank authorizing the customer to purchase the items now and pay the amount with in the prescribed period. Credit cards can be domestic cards and International cards. These cards are issued to individual customers and business firms operating an account in the banks. It is very easy and convenient mode of using the card for non- cash payments at the institutional and corporate level. Credit Cards are generally issued based upon the individual's credit worthiness. Credit cards must be used very carefully based on the source of income and maintaining periodical payments, otherwise the customer is posed to greater risks with higher rate of interest payment along with the amount