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MEANING OF FINANCE

Finance is the set of activities dealing with the management of funds. More specifically, it is the
decision of collection and use of funds. It is a branch of economics that studies the management
of money and other assets.

Finance is also the science and art of determining if the funds of an organization are being used
properly. Through financial analysis, companies and businesses can take decisions and corrective
actions towards the sources of income and the expenses and investments that need to be made in
order to stay competitive.

Finance is the life blood of business. It flows in mostly from scale of goods and services. It flows
out for meeting various types of expenditure. The activating element in any business which may
be on industrial or commercial undertaking is the finance.

Business finance has been defined as those activities which have to do with the provision and
management of funds for the satisfactory conduct of a business. Business finance is defined as
that business activity which is concerned with the acquisition and conservation of capital funds
in meeting the financial needs and overall objectives of business enterprises.

So we can say business finance is mainly developed around three major objectives.

Firstly, to obtain an adequate supply of capital for the needs of the business,

Secondly, to conserve and increase the capital through better management,

Thirdly, to make profit from the use of funds this is an overall objective of a business enterprise.

Before industrial revolution, finance was not of much importance. The methods of production
were simple. For example, the artisan used to work in open small hut. He had simple tools
mostly made by himself. Labour at that time was more important than capital and finance did not
pose any problem. Production in those days was, therefore labour intensive.
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The financial system or the financial sector of any country consists of specialized and non-
specialized financial institutions of organized and unorganized financial markets of financial
instruments and services, which facilitate transfer of funds procedures and practises adopted in
the markets and financial interrelationship, are also part of the system. The structure of a
financial system in any economy is as follows:


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In these markets consist of many lenders, indigenous bankers, transfers and private chit
funds etc. whose activities are not controlled by RBI. Recently the RBI has taken steps to bring
private function companies and chit funds its strict control but using non banking financial
companies directions in 1998.


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In these markets there are standardized rules and regulations by Reserve Bank of India or other
regulatory bodies. The organized markets can be further classified into two. They are:

1)c Capital markets.


2)c Money markets.


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: It is a market for long term funds which have a long or indefinite
maturity. Capital market further divided into three mainly:

a)c V cc cIt is a market for industry security namely equity shares or
ordinary shares, preference share, debentures or bonds. It is a market where industrial
concern raises their capital or debt by assuring appropriate instruments. It can be further
subdivided into two. They are:

ëc Primary market: It is a market for new issue or new financial claims.


ëc Secondary market: It is a market for existing securities and those already issued
and quoted in stock exchange˜c
b)c c!  cc cIt is also called gilt-edged securities market. It is a
market where government securities are traded (long term securities)

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A financial instrument refers to these documents which represent financial claims on
assets. Financial instrument can also be called financial securities. These instruments are
classified into
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c VV cShares and debentures issued directly to Public.c
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c VV cThese securities issued by some intermediaries ex;
UTI and Mutual fund again these securities may be classified on the basis of duration
as follows.
ëc #cc c ithin one year ex; bills of exchange.c
ëc cc cMaturity period between 1-5 years ex; debentures.
ëc  $cc cMaturity period more than 5 years ex; Gilts.c

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transfer capital from those it to those who needit.c
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V cMuch number of banks joins together and forms a syndicate
to provide loan as big sum to corporate˜c
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V c A lease is an agreement under which a company acquires a right to make
use of capital assets like machinery for agreed period in return for periodic payment of
rentals˜c
d)c &Vc &
 cIt is an agreement relating to transaction in which goods are let on
hire.
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credit risk in the collection ofbook debt passes for its client.c
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c A venture capitalist finances a project based on the
potentialities of new innovative projects for new entrepreneurs˜c
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c  c c A mutual fund refers to a fund raised by a financial services
company by pooling the savings of the public˜c

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Banking is one of the most important sectors of business and finance that assists the world of
commerce to keep on running.  ithout banks and the banking services that they provide,
commerce and trade would collapse and credit would become virtually extinct. As the decades
progress many new concepts are being introduced into banking. At their most basic, banks hold
money on behalf of customers, which is payable to the customer on demand, either by appearing
at the bank for a withdrawal or by writing a check to a third party. Banks use the money they
hold to finance loans, which they make to businesses and individuals to pay for operations,
mortgages, education expenses, and any number of other things. Many banks also perform other
services for a fee; for instance they offer certified checks to customers guaranteeing payment to
third parties. In some countries they may provide investment and insurance services.  ith the
exception of Islamic banks, they pay interest on deposits and receive interest on their loans.
Banks are regulated by the laws and central banks of their home countries; normally they must
receive a charter to engage in business. Banks are usually organized as corporations.

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An organization, usually a corporation, chartered by a state or federal government, which does


most or all of the following: receives demand deposits and time deposits, honours instruments
drawn on them, and pays interest on them; discounts notes, makes loans, and invests in
securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and
cashier's checks.

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Banks are classified into various types based on the function they perform. They are as follows:

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Commercial banks perform all the business transactions of a typical bank. They accept
saving bank deposits, fixed deposits and current deposits which are repayable on demand
or on short notice.
Likewise, they lend or invest only for short durations. They provide funds only for short
term needs of trade and commerce. These banks cannot invest credits and overdrafts as
they are expected to meet the immediate requirement of depositors. The commercial
banks provide a vital service to its customers, a simple means of medium of exchange
called cheques. They also perform a large number of agency functions to their customers
for which they charge a commission.

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Investment banks, also called industrial banks, are those banks which provide funds on a
long for industries. They are specialized in providing long term loans to industries with a
view to buy plant, machineries, etc. These banks obtain funds through share capital,
debenture and long term deposits from the public. The bank floats bonds for the sake of
mobilizing funds to provide funds for big industrial corporations. They also underwrite or
issue new shares and debenture of industrial companies. They also purchase entire issue
of new securities of company and later sell them to public at higher prices.
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Exchange banks are known as foreign banks or foreign exchange banks. These banks also
provide foreign exchange for import trade. Their main function is to make international
payment through the purchase and sale of exchange bills. The exchange bank provides
assistance in the conversion of currencies. They discount foreign exchange bills which
are used in foreign trade˜c
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Co-operative banks are performed to meet the meet the banking requirements of
consumers. They are established in urban as well as rural areas. In rural areas, the bank
provides finance to agriculture and in urban area it provides finance to buy consumer
goods. These banks function like commercial banks receiving deposits and lending
money. They provide short and medium term loans. As they are formed on cooperative
principles, they are more service oriented rather than profit. The bank provides credit at
lower rates of interest to people of small means like small cultivators,
artisans, petty shop-keepers etc. They have been classified into land development banks
or land mortgage banks and urban credit-oriented banks.

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Savings banks are specialized financial institution establishment to mobilize savings from
the people. They pool the savings of the small incomes of the community. The savings
banks accounts have been provided by all commercial and co-operative banks and even
post offices. Saving bank business has become more prominent than others forms of
accounts as it provide various facilities like frequent withdrawals, attractive rate of
interest, the use of cheques etc.

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Central bank is an apex bank in the country. It brings the entire banking system unified,
controlled and regulated. It is the main source of an efficient banking system in the
country. The monetary policy of a country is formulated and enforced by the central
bank. It is responsible for monetary stability in the country. The expansion and
contraction of note issue are managed by the central bank. It functions as a banker to the
government and commercial banks. It assists the government in the implementation of
various economies policies.

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Prof. Sayers in his book µModern Banking¶ has described the functions of a modern bank in the
following words: ³Ordinary banking business consists of changing cash from bank deposits and
bank deposits for cash, transferring bank deposits for cash, transferring bank deposits from one
person to another and giving bank deposits in exchange of bills of exchange, government bonds,
the secured promises of businessmen to repay and so forth.´

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The major function of the commercial banks is accepting various types of deposits such as fixed
deposits, current deposits and savings deposits. People want to keep their cash balances safe for
which they deposit it with a bank. The commercial bank protects the cash of the customers and
provides a convenient method of transferring funds through the use of cheques. It is the
obligation of bank to honour cheques drawn upon the bank, making payment across the counter
on demand by the customers to the extent of money available at the credit of customer¶s account˜c
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A fixed deposit is one where a customer keeps a certain amount of money in a bank for a
specific period. It may be 6months, 1 year, 2 years 3 years or 5 years. The fixed deposit is
not expected to be withdrawn before the expiry of the period.
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Saving deposits are those deposits on which the bank pays a certain conditions. The
customers are expected to maintain a minimum balance in the account.
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Current deposits are those deposits which can be withdrawn at any time by means of
cheques. The bank does not pay interest on current deposit. A customer who opens a
current account has to
*Information has been collected from the book A Hand book of banking by N. S. Toor

maintain a minimum credit balance of Rs. 500. At the same time current holders has to
pay service charge˜c
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The second main function of the commercial banks is to provide loans and advances out of the
money the bank receives by the way of deposits. The bank receives deposits in order to lend the
same. It is this function of a banker¶s activities which is the largest contributor to the bank¶s
profit. Commercial banks provide various types of loans such as direct loans, cash credit, bills
discounted and overdrafts etc. Direct loans and advances are provided to all types of persons
against the security of movable properties.

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Another important function of a banker is the services offered by them as an agent. The commercial
banks render a significant service by providing to its customers a simple means of medium of exchange
called cheques. The cheque system is considered to be the most developed type of credit instrument. The
banks perform miscellaneous functions such as undertaking the payment subscriptions, insurance
premium, rent, etc. On the behalf of the customers they collect cheques, bills, salaries, pensions,
dividends, interests, etc that belongs to the respective accounts of the customers. The banks perform these
functions as per the instructions given by the customers and make payments as and when directed. For
these services they charge a certain amount of fee by means of commission˜c

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A banker performs many general utility personal or miscellaneous services for his customers.
The general utility services include the safe- keeping of valuables and documents, the issue of
credit instrument for easy transfer of funds, collection of credit information regarding the
customers, transaction in foreign exchange and provision of specialized advisory services to the
customers˜c

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Banking is an ancient business with its history dated back to the 13th century.  hen the first bill
of exchange was used as money in the medieval trade. Banking in India as its origin as early has
the Vedic period. During the days of east India Company, it was the turn of the agency house to
carry out the banking business. The general bank of India was the first joint stock bank to be
established in the year of 1886. The others that followed are the Bank of Hindustan and the
Bengal Bank. In 1891 the first purely Indian Bank that is United Commercial Bank came into
being. The setting up of Punjab National Bank in 1894 followed it. In 1920, three bank namely
Bank of Bengal (1809), Bank of Bombay (1840), Bank of Madras (1843) were amalgamated and
a new bank, Imperial Bank of India was established. The Reserve Bank of India, which is the
Central bank, was created in 1935, with the passing Reserve Bank of India act in 1934. Later
with the passing of State Bank of India in 1955 the undertaking of Imperial Bank of India was
taken over by newly constituted State Bank of India. In the wake of Swadeshi Movement in 1905
no. of Bank with Indian Management were established in the country namely Punjab National
Bank Ltd. The Bank of Baroda (1908), Bank of India (1906) Canara Bank Ltd. Indian Bank Ltd,
Central Bank of India Ltd. (1911). ON July 19th 1969, 14 major Banks of the country were
nationalized and on 15th April 1980 six more Commercial Private Banks were also taken over by
the government of India. Banking Industry has achieved a tremendous progress during the past
few years; many Banks and Financial Institution haveentered into the market and have made a
rapid growth towards achieving the ultimate object of attaining leadership in Banking Industry.

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The Indian Banking System can be broadly classified into:

1)c Nationalized (Government Owned)


2)c Private Banks
3)c Specialized Banking Institutions

The RBI as a centralized body monitoring any discrepancies and short coming in the
system. Private Banks has been fast on the uptake and are reorienting their strategies
using the internet as the medium.
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A radical re-structuring of the economic system consisting of industrial deregulation.


Liberalization of policies relating to Foreign Direct Investment (FDI), Public Enterprise
Reforms, of taxation system, trade liberalization and financial sector has been initiated in 1992-
93. Financial sector reforms in the area of commercial banking, capital markets and non-banking
finance companies have been undertaken˜cImproving financial sounds and credibility of banks is
a part of banking reforms undertaken by the RBI, a regulatory and supervisory agency over
commercial banks under the Banking companies Regulation Act 1949. In the areas of capital
markets of SEBI was set up in 1992 to protect the interest of the investors in the securities and to
promote development and regulation of security market. In regard to non-banking finance
companies the RBi has issued several measures aimed at encouraging disciplined NBFC¶s,
which run on sound business principles. The economic reforms also aimed at improved financial
viability and institutional strengthening, to improve the effective implementation of monetary
policy, linkages among money anf foreign exchange markets have been enforced.c

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Commercial Banks are playing a crucial role in the economic development of the
country. In fact, without the development of commercial banking in 18th and 19th centuries. In
the modern economy, banks considered not only merely as dealers in money but also as
reservoirs of resources necessary for the economic development.c

Banks provide short-term loans which serve as a capital for industrial


establishment. Banks also create credit, which enables the industry and commerce to
expand economic activities. Banks are contributing very significantly for the expansion
of industrialization. Expansion will provide more funds for the entrepreneurs to start new
industries, which results in more employment and income generation. A very important
service that banks render to the community is the creation of demand deposits in
exchange of debts of short-term and long-term securities. Banks promote capital by
means of pooling of savings from people. These are the important services rendered by
the bank


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After the nationalization of some big commercial banks in India, there has been an
immense growth in banking industry with the establishment of more number of banking offices.
Today the banking business has become very competitive. Various types of banks provide large
number of services not only on national but international ground as well. The growing trade and
commerce has made banks to modernize their operations in order to satisfy the customers. Indian
banks have also felt the need for modernization of their operations like their counterparts in
western countries. This was very essential as well to deal with extremely increased volume of
business in an appropriate and efficient manner and to do effective business. Modern banking
institutions have sought to automation like introduction of computers and other equipments as
well as the wealth of information technology.

³The major objective of modernizing banking system is to improve bank operations while maintaining

high level of standards in banking sector.´ c

Banks are viewed as development agents instead of providers of credit to large industries and
big business companies. In India, the banks apart from providing credit to agriculture, trade
industry and commerce are offering a large number of services to the customers. They make
payments, collects electricity and water bills, telephone bills, take buy and sell decisions on
behalf of their customers and so on.

Today more and more number of business functions is entrusted on banks. They provide their
services to labourers, petty wage earners, small traders, etc.  ith the appearance of modern
banking system, the rural credit system with the money lender nearly collapsed.

The modern banks have developed strategies to meet the requirements of common men in
achieving economic and social development.

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In the history of commercial banking, the nationalization of the Imperial Bank of India was a
great achievement. In February 1969, the social control of commercial banks came into force.
The government made suitable organizational changes in order to implement the provisions of
the Amended Act. The banks were directed to grant loans to agriculture, small scale industries
and self employment in an increasing manner. The boards of managements of bank were
reconstituted. Yet the industrialists who were on the Board of management continued to exert
their influence on the lending policies of the big banks. The Reserve Bank of India started
exercising its power to direct the banks when necessary to adopt new regulations. In fact, the
social control was in stage of infancy. The government felt that that the social control was not
sufficient in a planned economy. The government further said that under the private ownership,
social objectives cannot be achieved. Therefore on 19th July 1969, the government announced the
nationalization of 14 major banks, whose deposits were not less than 50 crores, through an
ordinance. The 14 banks controlled 72 percent of total scheduled bank deposits. The banks that
were nationalized are as follows:

1.c The Central Bank of India, Ltd.

2.c The Bank of India, Ltd.

3.c The Punjab National Bank, Ltd

4.c The Bank of Baroda, Ltd

5.c The United Commercial Bank, Ltd.

6.c Canara Bank, Ltd.

7.c United Bank of India, Ltd.

8.c Dena Bank, Ltd.

9. Syndicate Bank of India, Ltd.


10. The Union Bank of India, Ltd

11. Allahabad Bank, Ltd.

12. The Indian Bank, Ltd.

13. The Bank of Maharastra, Ltd.

14. The Indian Overseas Bank, Ltd.

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As stated in the Act, the objective of nationalization is to control the heights of the economy and
to meet gradually and enhance the needs of other development of the economy with respect to
National Policy and the objectives. Except this main objective, other specific objectives were:

ëc Removal of the control of banks by a few persons

ëc Provision of adequate credit for agriculture

ëc Small scale industry and exports

ëc Professional outlook to bank management

ëc Encouragement of new classes of entrepreneurs

ëc Provide adequate training to staff

The government said that nationalization is a major step in the process of public control over the
principal institution. This would mobilize the people¶s savings

and direct it towards productive purposes. After the nationalization the banks will be more
focused on the serving farmers, promoting agricultural production and developing rural sectors.
Public ownership of banking will utilize the credit facility towards speculative and other
unproductive purposes. Nationalization will also bring right atmosphere for the development of
an adequate amount of professional management in the field of banking.

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Continuing the policy of nationalization, in 1980 the government nationalized six more banks.
They were the Andhra Bank, the Corporation Bank, the New Bank of India, the Oriental Bank of
Commerce, the Punjab and Sind Bank and the Vijaya Bank. By nationalization of these banks,
the government has been able to exercise control over 91 percent of the resources of the entire
banking system. Remaining 9 percent is held by foreign banks and private sector banks.

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After nationalization, the government introduced suitable administrative changes to implement


the objectives enshrined in the Act. The banks started diversifying lending policies. Government
set up different department to handle the proposals. Training centres were established to train the
staff. Field officers were recruited to make contact with the prospective customers. Since
nationalization, the performance of banking system is outstanding in a lot of respects.c

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The RBI was established on 1st April 1935 under the reserve bank of India act, which was passed
in the year 1934. The reserve bank of India is the central bank of our country. The RBI was
started originally as a scheduled bank and its paid up capital was Rs.5 crores.  hen RBI was
established, it took over the function of currency issue

The reserve bank of India was nationalized in the year 1948. The instruments used by reserve
bank of India are.

ëc Bank rate
ëc Open market operations
ëc Variable cash reserve requirements.
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ëc The reserve banks of India issues and regulates the issue of currency in India.
ëc The RBI acts as banker to government. The RBI looks after the derent financial
transactions of the government and manages the public debt of government
ëc The RBI acts as banker to the commercial bank. Commercial banks keep and
maintain their accounts with the reserve bank of India. Commercial bank keep
deposits with RBI and they borrow money from RBI when necessary. RBI acts as
lender to last resort to commercial banks.
ëc The RBI exercises the control over the volume of credit created by the commercial
banks in order to ensure price stability

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ëc The RBI established the bill market scheme in 1952.

ëc The RBI has tried to help the establishment of financial corporation to provide
credit to the agricultural sector of the economy.
ëc The RBI has promoted regional rural banks with the help of commercial banks to
extend banking facilities to rural areas.
ëc The RBI has taken steps to enable the commercial banks to open branch in foreign
countries.
ëc The RBI encourages and provides research in areas of banking

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One of the primary functions of the commercial bank is µlending¶. Through lending commercial
banks meet their objective of making profits. The deposits collected from the public cannot be
kept idle. It has to be utilized in order to derive benefits out of it. The bank collects deposits with
the objective of lending and makes profit out of the interest received and paid. Their main aim is
to deal in money and provide for those who need it. The banker performs the job of lending
within the framework of statues governing the banking business, the government policy and
guidelines issued by the authorities of the country (RBI in India).The basic objective of
nationalization of commercial banks was to provide funds to the neglected sectors like
agriculture, tiny industries and other weaker sections of the society. Today nearly 40% of the
total commercial bank advances are the priority sectors. Greater part of the commercial bank
funds are employed in the form of loans and advances. Loans bring good money to the bank in
the form of profit by charging interest. Lending function of a commercial bank benefitsthe bank
in the form of profit and the one who takes loans enjoy the benefit of money required for their
activities. The wheels of industry cannot run without the bank advances. The bank needs to
assess the condition of industry or trade or any business enterprise while making advances˜

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Commercial banks are the most important source of short-term capital. The major portion of
working capital loans are provided by commercial banks. They provide a wide variety of loans
tailored to meet the specific requirements of a concern. The different forms in which the banks
normally provide loans and advances are loans and advances are loans, cash credit, overdrafts,
purchasing and discounting of bills.


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 hen a bank makes an advance in lump-sum against some security it is called a loan. Here, a
specified amount is sanctioned by the bank to the customers. The loan amount so sanctioned is
paid to the borrower either in cash or by credit to his account. A certain amount of interest has to
be paid by the borrower for the loan that has to be borrowed. A loan can be repaid in lump-sum
or in installements. Commercial banks generally provide short term loans up to one year for
meeting the working capital requirements. But these days, term loans exceeding one year are also
provided by banks. The term loans may be either medium term or long term loans.

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Commercial banks normally provided short term financial assistance to industrial sector. The
assistance provided by them provided by them fulfilled the working capital requirement of the
industrial enterprises. A massive investment in industries during second plan and after changed
the priority of bank lending. The industrial required high funds for long term financing. The
financial institutions failed to meet the increasing demands of the industries. Then the entry of
commercial banks came into existence and filled the gap between the demand and supply of long
term requirements. The banks started giving term loans to meet the long term needs of the
industry. The refinance scheme of IDBI encouraged more term lending by commercial banks.
The commercial banks are assisting industrial units by granting term loans, subscribing to shares
and debentures of corporate units and underwriting securities issued of these companies.c

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General Lending Policy in Relation to the business of the borrowers and the purposes for which
the advance is required. In handing a proposal relating to a particular nature of facility, apart
from the general guidelines that have given, the branches should refer to the detailed instruction
as contained in the respective instruction circulars so as to ensure that all instructions relating to
a particular type of advance are compiled with. The bank sanctions various kinds of clean /
unsecured credit facilities as well as secured credit loans, details of which the security there for
and the security documents to be obtained are elaborately explained in the security documents to
be obtained are elaborately explained in the guide documentation.It is the nature of the business
of the borrowers. In handling a proposal relating to a particular nature of , apart from the general
guideline that have been given, the branches should refer to the detailed instructions as contained
in the respective instruction circulars so as to ensure that all instruction relating to a particular
type of advances are complied with.

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Purchase of house/flat, construction of house/ flat , repairs/improvement/extension,
Repayment of loan availed from other agency/bank/NBFC. Indian citizen not below 21 years,
singly or jointly with other co-owners. Maximum Rs.50 lacks depends on repayment capacity
subject to net, take home salary being35% of gross income. Maximum Rs.10 lacks for
repairs. However, maximum loan amount in Mumbai and New Delhi may be considered up
to Rs.50 lacks. Maximum amount of loan may be calculated 4 times the annual gross salaryor
5 times the annual net salary of the applicant and his/her spouse whichever is higher in the
case of salaried people. The margin for purchase of new house/flat/construction 15% of cost.
And for repair 30% of cost.

1.1cSecurity Document
ëc Equitable Mortgage or simple mortgage of house/flat.
ëc If under construction, interim security in the form of LIC/shares/national savings
certificate/Kissan vikas pattra/ mortgage of other property.
ëc One/two guarantors whenever possible.
ëc Loan agreement.
ëc Letter of authority to employer in case of salaried employee.
ëc Letter of guarantee.

Repayment of moratorium upto18 months. Maximum period should not exceed 15 years
and 10 years for house repairs in equated monthly instalments. Free insurance benefits such
as insurance of property against fire allied perils including earth quake and personal accident
(death) as per negotiated terms and conditions to be offered.

Other conditions finance can be extended for purchase of existing flats/house of not older
than 15 years. House loan outside salaried sector can be granted only to income tax assesses
in urban areas.

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Purchase of new two/four wheeler for personal/professional use. Purchase of old cars of less
3 years old. The eligibility is 18 years and above. Permanent employee of central
state/defence/police/force/ autonomous bodies/public or joint sector under taking/ reputed
firms/ Established Educational Institutions. Professionals having regular income. Net take
home pay (after deduction of instalment) is rs.2500 for 2 wheeler & branch and irrevocable
letter from employer to remit instalments to bank till liability is liquidated. The borrower
should be customer of the bank.Loan amount will be three times of net income/net annual
salary subject to maximum of rs.10 lacks 2of the cost of new vehicle. 50% for old cars
certified by a reputed automated certification agency. The security document should be
Hypothecation of vehicle financed by the bank. Bank¶s lien to be noted with the Transport
Authorities. Guarantee of the spouse. In case unmarried third party guarantee of sufficient
means D.P note letter of guarantee hypothecation of vehicle.

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To meet requirement for buying and selling securities by offering 2 way quotes. The eligibility
for the market marker who are having minimum net worth of rs.1 crore and are approved by
SEBI(Securities and Exchange Board of India) stock exchange. The loan amount for 3 times the
net worth or rs.5 crores whichever is lower. Advance should be fully secured by way of collateral
security in the form of immovable property or any other security in addition to the securities
which are held as part of Market Making operation

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To establishing a new industrial unit or for expansion of the existing unit or for modernization, a
detailed project feasibility report should be obtained. Industrial concerns are usually limited
companies or public sector undertakings, although individuals or partnerships owning small and
medium industries cannot be riled out. An industrial concern may be engaged in more than one
industrial activity and may also be engaged in other activities such as trade, import, export etc. if
the borrower is engaged in more than one type of activity for which finance is required. Credit
facilities may be extended by way of cash credit/bills discounting for working capital and by way
of term loans for acquiring capital assets namely, construction of factory building purchase and
installation of machinery, replacement of machinery etc. If the advance is required for
establishing a new industrial unit or for expansion of the existing unit or for modernization, a
detailed project feasibility report should be obtained. The feasibility plan and how advances are
proposed to be used to get with a view to satisfy about the technical feasibility, commercial
viability, financial stability and management competency.

5. c cc.#c# cc"


Trade and commerce is usually carried on by partnership firm, joint families and individuals,
limited liability companies and co-operative societies. The trade may be wholesale or retail and
principals or as
distribution agents or commission agents. The business may be confined to one or more articles
of trade. The finance may be required by way of pledge or hypothecation of commodities, for
buying or holding the stocks
or by way of purchase and discount of bills for quick receipt of sale proceeds of the goods sold.
It has to be ensured that the finance is not required or used for speculative purposes or for
hoarding or for socially undesirable purposes.c

"cccccccccV   c -c

Manual of foreign exchange published by international banking division, central office explains
in detail various types of import and export transaction together with exchange control
requirement to be observed by bank officials as also the systems and procedures prescribed for
handling such transaction at branch level.  e will see in brief, credit facilities usually extended
to the exporter/importer customers.c

V0cc

Finance for import trade could be either fund based or non-fund based or both. The non-fund
based credit facility is in the form of letters of credit. Since such letters of credit (L/C) contain an
undertaking by the bank to pay against presentation documents conforming to the terms and
conditions stipulated in the letter of credit, opening a letter of credit involves a credit decision for
which purpose, the proposal has to be processed in the same manner as it would be, if the
proposal were for grant of an advance for an equal amount. Since the bank relies on goods being
imported under letter of credit as a security for payment of relative bill, the marketability of such
goods, taking into account the licensing conditions should also be considered.c

a)c The import of goods is controlled by government of India through import trade control
regulation. The import licenses are issued in 2 copies-µcustomer copy¶ is for the purpose
of clearing the imported goods through customs and µexchange control copy¶ to facilitate
remittance of foreign exchange in respect of relative import bill.
b)c The funds based import finance generally takes of a back up limits to the letter of credit
limit sanctioned to a customer. Such limits are considered where import of goods is made
in economic order quantities for use in production over a period of time.

ß"cccccc10c -c

Credit facilities to exporters are broadly classified as µpre-shipment¶ and µpost-shipment¶. As the
term indicates, financial assistance extended up to the time of shipping the goods is called pre-
shipment advance, which is controlled in the books under the head µPacking credit¶c

Packing credit finance oriented finance and is granted to exporters or manufacturers or sub-
suppliers for the specific purpose of procuring raw materials/ purchasing/manufacturing/
processing/ transporting/ warehousing/ packing and shipping the good

"ccccccccccccc -c

In our corporate objectives for business growth retail banking is identified as a thrust area. It is
also the need of the hour to mobilize a good portfolio of retails banking, business, as it provides a
major source for sustaining growth in the industry and will thus ensure our position in the market
place. Towards this, our personal loan products under retails banking have repackaged and re-
launched.c

Retails banking are a combination of product development and selling strategies, essentially
focused on personal banking segment. It is a great opportunity for banks that already have a
wide branch banking and a large manpower base. The wider reach and staff to support intensive
marketing give us an edge to develop the business. It is an opportunity for branches to improve
profitability and develop there own loan book to generate attractive income. Hence, retail
banking is the source that will support branches across the country in a more sustaining way.c

"cccccccccc    $c c)c0#c)c c)c


$c0 -c
Term loans for development purposes and short term loans for production purposes. Now, there
is need to finance farmers for purchase of land to expand activities and make existing small and
marginal units

Economically viable which would enable farmers to diversity their present activities and take up
allied activities. The main objective is to make small and marginal holdings economically viable.
To bring follow lands and waste lands under cultivation. To step up agricultural production and
productivity. To increase the income of share croppers/ tenant farmers/ small and marginal
farmers. The eligibility for the small and marginal farmers who are having less than 5 acres non-
irrigated land or less than 2.5 acres of irrigated land. Share croppers/ tenant farmers. The farmer
should have adequate surplus income from his production activities on the land being financed
and other income to repay the bank loan with interest.

The purpose of financing the farmers by way of term loan for purchase of land. (Agriculture/
fallow/ waste land) and also finance to meet their working capital requirements of cultivation.
Financing can also be done for purchase of land for establishing or diversifying into other allied
activities like dairy, poultry etc.

The quantum of loan to be sanctioned depends on:-

ëc Area of the land to be purchased


ëc Its value in the market. (for the purpose of valuation of land. For fixing the quantum of
finance, the price indicated by the farmer may be cross-checked with the register/ sub-
register of the area).

Quantum of loan should include land purchase cost, development cost and cultivation
expenses. The margin should be:-

1)c Mortgage of purchase land

2)c Hypothecation of crops/ asset


3)c D. P Note

4)c Hypothecation agreement

5)c Mortgage of purchased land

The repayment period is 5 to 7 years in half yearly/ yearly instalments depending upon
Croppingpattern including a maximum moratorium period of 12 months In case of any longer
period, it will be referred to regional offices with justification.
c
cc
c
 c
c
c

c
V c c&c 
Analysis of loans and advances of United Bank of India.

V  V c
Research design here refers to the methods used to collect the required data for the survey. It is
the outline of the total project. It contains the information stating the objectives of the study,
scope of the study methodology of the study, tools and techniques used for the survey, methods
of data collection, limitation of the study etc. in short research design is the chapter in which the
blue print of the whole project is explained.

The research design includes an outline of the study which was conducted at United Bank of
India. There are various types of products and a service offered by UBI, and providing loans to
people are one of the important functions of the bank does. As this research study is mainly
based on these schemes, we will discuss more on the loan schemes provided by United Bank of
India.

'3 V%c c&c c

1.c To understand the terms and conditions of various loan schemes provided.
2.c To study and evaluate the performance of each loan scheme.
3.c To study about the respondent and their varying interest.
4.c .To makes suggestion based on findings.

 c c&c  c
The operational jurisdiction of the research is limited to United Bank of India. The scope
covers all loan schemes of UBI.
1.c The study is mainly concentrated on the lending practises pattern and influence in the
organisation performance.
2.c This project is mainly concerned with the lending practises in the nationalised bank of
issuing various securities.
3.c The study enables the company to know its current position.
4.c To know and to set its objectives and goals.
·˜c The study helps in ascertaining people¶s response on bank lending˜c


c c&c'  c
c
The financial management of public units has been a grinding issue before the mobility
of resources. Even after the findings and intensive industries in the sector face huge
cash crush and in inadequacy in the mobility of resources. Even after the findings and
recommendation of so many committee appointed by the government to enquire into the
working capital issues of public sector units.
c
%V6c c V
 c
c
It is mandatory to scan through the literature which has already gone through the
proposed study subject. Various research works on lending practises of UBI has been
very helpful in the successful conduct of the study. However all such studies
concentrate on certain issues and suggest piecemeal solution. Therefore, a
comprehensive study is elusive. The text and academics literature which helped the
study in details are:

ëc A Hand Book of Banking by N. S. Toor


ëc Ramman Finance management.
ëc Finance management and policies by James C. Van Horne.
ëc Management accounting principle and practises by R. K. Sharma.
ëc Accounting for managers S. P Jain and K.L. Narang.
ëc Research methodology by C.R. Kothari.
ëc Business Research Methods by Appannaiah Reddy and Ramnath
cccccccccc
 &c&   c
c
This refers to the method of data description. Descriptive research includes surveys and fact
findings enquire of different kinds. The major purpose of descriptive research is
description of the state of affair as it exists at present. In business research we quite often use the
term export facto research for descriptive research studies.
The main characteristics of this method is that the researcher has no control over the variable, he
can only report what has happened or what is happening. Themethod of research utilised in
descriptive research are survey methods of all kinds including comparative and correlation
methods.
c


c   Vc  c
c
Data mainly collected from both primary and secondary sources.

?˜c V
c

c Primary data are freshly gathered for a specific purpose or
for a specific research project. Primary data was collected by way of discussion
with company officials. Mainly with bank manager. It has colled through the
interim schedule, discussion and by interacting with the officials of the
organization or therespondents.c
c
-˜c c 
c

c Secondary data that were collected through published
materials like pamphlets, company books and from the official website that is
www.unitedbankofindia.comc
c

c
ccccccccc c
 c &V7 c

Information has to be collected on the basis of the questionnaire distributed to


the borrowers

Internet/ prominent search engines have been used for collecting the Data, market
watch is also used to some extent for interpretation analysis.

All data collected are carefully classified, tabulated for the purpose of research
and interpreted on the basis of charts and tables.
c
c
c

VV
Vc c&c  c
c
c
1. Confined to one financial institution i.e. United Bank of India.

2. On account of time constraint whole spectrum of long term lending practises was
not possible.

3.c Inaccurate and inadequate information might have resulted to wrong


interpretation.

4.c Only a very few no. of respondent were interviewed to get the information.

5.c Accounting information is another constraint.