INTRODUCTION TO LOANS

One of the primary functions of the commercial bank is lending. 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 benefits the 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

SHORT TERMS LOANS FINANCED BY COMMERCIAL BANKS

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.

LOANS:
When 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 installments.
Commercial banks generally provide short term loans up to one year for meeting the
W orking 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.
 A loan is a kind of advance made with or without security. In case of a loan the bank
makes a lump sum payment to the borrower or credits his deposit account with the money
advanced. It is given for a fixed period at an agreed rate of interest. Repayments may be
made in installment or at the expiry of a certain period. The customer has to pay interest
on the total amounts advanced whether he withdraws the money from his account or not.

ADVANTAGES OF LOAN:
a) Observance of the financial discipline by the borrower: In loan system, the
time and amount of repayment of installment is fixed in advance
b) Periodic review of loan account: The banker gets an opportunity to review the
loan account as and when a loan is granted or renewed.
c) Simple and profitable: the banker charges interest on the total amount sanctioned
as a loan to the borrower irrespective of the withdrawals by the borrower. Thus,
there is no loss of interest to the banker. Moreover the operation of the system is
comparatively simple.

LIMITATIONS OF LOAN:

a) Inflexibility: The system is inflexible in the sense that every time a loan is
required the banker has to negotiate with the borrower.
b) More formalities: sanctioning of the loan requires more documentation as
compared to a cash-credit system.
c) Frequent renewals: Though the loan is sanctioned only for a fixed period but in
practice they are continuously renewed period after period.

ADVANCE

In construction financing to disburse money from the allowable total amount of a

loan in order to pay bills currently due, or to pay the builder or developer according to a
previously agreed upon schedule of payments. Typically, a certain percentage will be
advanced upon approval of plans and drawings, another amount at completion of all
clearing and grubbing, at the end of final grading, when the structure is in the black (the
roof decking has been completed), and then again at completion and final inspection
An advance payment, or simply an advance, is the part of a contractually due sum that is
paid or received in advance for goods or services, while the balance included in the
invoice will only follow the delivery. It is called a prepaid expense in accrual accounting
for the entity issuing the advance. Advanced payments are recorded as assets on the
balance sheet. As these assets are used they are expended and recorded on the income
statement for the period in which they are incurred. Insurance is a common prepaid asset,
which will only be a prepaid asset because it is a proactive measure to protect business
from unforeseen events.

Cash credit:

A cash credit is an arrangement by which a banker allows his customer to borrow

money up to a certain limit. Cash credit arrangements are usually made against the
security of commodities hypothecated or pledged with bank.

Advantages of cash credit:

a) Flexibility: The borrower can withdraw the total amount or a part of the amount
of cash credit.
b) Convenience: Banks have to maintain only one account for all transactions of the
customer and hence repetitive documentation can be avoided. Thus, the system is
quite convenient to operate.
c) Charges of interest: The interest on cash credit is charges on the amount which is
already withdrawn.

OBJECTIVES OF THE STUDY

1. To understand the terms and conditions of various loan schemes provided.

2. To study and evaluate the performance of each loan scheme.
3. To study about the respondent and their varying interest.
4. To makes suggestion based on findings.
SCOPE OF THE STUDY:

The operational jurisdiction of the research is limited to SBI Bank. The scope covers
all loan schemes of SBI bank.

1. The study is mainly concentrated on the lending practices pattern and influence in
the organization performance.
2. This project is mainly concerned with the lending practices in the nationalized
bank of issuing various securities.
3. The study enables the company to know its current position.
4. To know and to set its objectives and goals.
5. The study helps in ascertaining people is response on bank lending

STATEMENT OF THE PROBLEM:

 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.

RESEARCH METHODOLOGY:

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. The method of research utilized
in descriptive research is survey methods of all kinds including comparative and
correlation methods.

DATA COLLECTION TOOLS:

Data mainly collected from both primary and secondary sources.

 1. PRIMARY DATA:

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 called through the interim schedule, discussion and by interacting
with the officials of the organization or the respondents.

2. SECONDARY DATA:

Secondary data that were collected through published materials like pamphlets, company
books and from the official website that iswww.unitedbankofindia.com

TOOLS AND TECHNIQUES:

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.

LIMITATION OF THE STUDY:

1. Confined to one financial institution i.e. SBI Bank.

2. On account of time constraint whole spectrum of long term lending practices was

not possible.

3. Inaccurate and inadequate information might have resulted to wrong

interpretation.

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

5. Accounting information is another constraint.