TAILIEUCHUNG - Lecture Retail and merchant banking – Lecture 17

After studying this chapter you will be able to understand: Basic lending principles, liquidity, asset management banking, liability management banking, profitability, profitability management. | Revise Lecture 17 Basic Lending Principles Basic Lending Principles According to section 6 of the Banking Regulation Act, 1949, banking means ‘accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise’. Basic Lending Principles Another major reason of the lending function is to add value to the bank. By lending the funds mobilized by it, a bank will be in a position to earn spreads to sustain profitability. Basic Lending Principles Profitability through lending will be obtained if the bank is in a position to take and manage credit risk that arises on account of the quality of the borrower and liquidity risk that may arise by borrowing short and lending long in order to attain greater spreads. Further, the spreads earned in this activity will also be exposed to risk arising from both interest and exchange rates. Basic Lending Principles Thus, while lending, the bank .

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