Answer-4

Secondary reserve Securities purchased by a bank for investment purposes are referred to as secondary reserves. These are the assets invested in safe, marketable, short term securities such as treasury bills and short term government securities. Secondary reserves are a source of supplement to its low level liquidity. They earn interest and can be useful in modifying the banks reserve position. Nature of secondary reserve in commercial banks High liquid earning asset - The secondary reserve consists of aggregate of high liquid earning assets. Assets with high liquidity are repo, reverse repo and treasury bills. Adequate liquidity to funds - One of the objectives of maintaining secondary reserve is to impart adequate liquidity to funds without adversely affecting profitability. The statutory liquidity ratio requires banks to keep 24 percent of their liabilities in government securities and the NDTL average is taken. Investment in assets - Investment in assets such as government securities yield income with high liquidity without any material loss based on the following conditions: = Shiftability It is the ready market that is required for quick liquidation of assets using repo and liquidity adjustment facilities to raise funds against treasury bills. = Low risk Asset should be free from money rate risk, which is the risk arising out of fluctuation in security price due to variations in interest rates. = Yield It is where the contractual rate of interest would remain the same. The contractual rate of interest is when it is proved that the transaction is commercial one then the borrower is bound to pay the interest at the rate agreed in the agreement and the interest will be paid on the principal amount. When the interest rate increases the yield-to-maturity (YTM) of the existing bond decreases. Interest bearing securities The maturity price of fixed interest that is, the security would be equal to the face value of the security during the end of the maturity period. Less vulnerable to interest Assets with short period securities are less vulnerable to interest rates fluctuate and therefore, have low risks. Balance sheet - Secondary reserves are a source of supplementary liquidity and are not listed as part of balance sheet items. However, these will be shown under Investments in the balance sheet. These items earn interest and are used to adjust the level of the banks reserve. Ready convertibility The liquidity of secondary reserves depend on the following aspects:= Its insurance. = Self-liquidating quality. = Organisation of the market for the assets. Functions of Secondary Reserve Assets invested in short-term profitable securities, usually short-term government securities and treasury bills do not earn high interest. However, secondary reserves are a source of supplemental liquidity. These assets

earn interest and can be used to adjust a banks reserve situation. Deposit funds often are invested in shortterm securities that are easily converted to cash, if loans are slow.
Banks rely on secondary reserves to meet cash demands. The assets that make up these reserves are found in the investment and the loan portfolios of a bank. There is no demarcation between a banks secondary reserves and its investments and loans. The secondary reserve differentiates from the other reserves from a banks other income that are held primarily to meet its liquidity needs. Secondary reserves essentially constitute the real source of bank liquidity in meeting deposit and loan demands for funds. A secondary reserve is one that may be drawn upon to fill the primary reserve whenever the latter becomes depleted. Withdrawals of deposits have the first influence on the primary reserves. However, a bank will not allow its primary reserves to be drawn down and remain under a desirable operating level. Investing funds within secondary reserves follows different patterns. Liquidity in different seasons provided by assets possess important attributes such as the prime quality (minimum of default risk), less than a years maturity (minimum of interest-rate risk), and in general a high degree of marketability (rapid and certain saleability). The liquidity of short term assets and bank liquidity, would certainly rely on the flow of funds at a given maturity date rather than upon their flexibility as marketable instruments. Management should decrease the participation of such assets in the secondary reserves and should place greater reliance upon readily marketable assets.Among the most widely accepted instruments in the type of secondary reserves are bankers acceptances. The only loans that could be considered eligible would be of a very short-term nature. Secondary reserves of the recurring type are designed to increase the secondary reserves in the bank and to make adjustments where the reserves are designed to provide banks protective and loan liquidity requirements that are cyclical in nature. The importance of secondary reserves in meeting a banks liquidity needs has been developed to measure the degree of commercial bank liquidity. The two most commonly referred to in this respect are liquid assets to total deposits and liquid assets to total assets.Liquid assets may be interpreted in broad or narrow terms. For example, liquid assets would be considered a bank cash assets and secondary reserves of both seasonal and non-seasonal nature. Factors influencing the level of secondary reserve External factors The following comprise of the external factors of secondary reserves in commercial banks: National factors The political stability of the government influences the level of secondary reserves. If the country is in turmoil, investments will decline. This in turn will affect the deposits and loans, and thus the level of reserves in a bank. Similarly, the level of the minimum reserves is affected if the economy is in a state of prosperity or recession. In addition, the banks policy on the liquid assets ration and the rediscounting policy have an impact on the rise or fall in the minimum reserve. Local factors Local factors refers to the nature of the local economy with the agriculturist and industrialist. It also influences the nature of the local population who are illiterate, and getting bigger employment opportunities for the educated local population. Local factor is also having impact on the natural calamities within the movement of local population. Internal factors - The internal factors influencing the level of secondary reserves are the deposit structure, the ownerships of deposit account, average size of bank accounts, access to many markets, nature of bank loans, maturities and diversification of investment portfolio.

Answer-3 Nature of Primary Reserves in Commercial Banks Since you understand the need for primary reserve in banks, let us study its functions and types of reserves and the factors that affect working reserves. Primary reserves refer to the liquid cash available on hand and also deposits owed to it by other. This is very helpful in meeting customer demands for loans, exchanges and withdrawals and solving liquidity Primary reserves cannot be lent or invested, but may be used in a liquidity crisis caused due to unexpected and heavy cash withdrawals by banks depositors. Functions of primary reserves The maintenance of adequate primary reserves is one of the main functions of commercial banks. The assets generally referred as primary reserves are the non earning resources of commercial banks that are in the form of cash or which can be converted into cash on demand. Cash holdings provide immediate liquidity but they do not generate income. Primary reserves are the bank resources that can be pledged. They enable commercial banks to maintain law by holding adequate cash reserves against their deposits. Primary reserves also act as a first line of defence to meet the withdrawals of depositors. Depositors can demand hand to hand money or write cheques payable to the others. In case they demand hand to hand money, then the bank has to shell out from its cash holdings from its vault. If they use cheques, the banks must use its balance with other banking institutions to meet them as they come for payment through clearing channels. These different functions of primary reserves distinguishes between legal reserves and working reserves held in the form of vault currency, cash in process of collection, deposits at other banks, and including deposits at the Reserve Bank of India (RBI) exceeding the amount required by law (excess reserves). Differences between legal reserve and working reserve Legal reserves The commercial banks have some assets, such as loans and government securities, which earn interest. Loans are debt contracts with the borrower, where as securities are debt contracts that the bank can buy without discussing the terms of the contract. The bank also has other assets like deposits at the central bank and paper money held in vaults. A bank requires some stand by cash to pay its depositors who want to exchange deposits for cash. Governments, usually acting through their central banks, have certain laws and regulations that decide the amount of these assets that a bank should possess. These required assets are called legal reserves, or bank reserves, or simply reserves. Bank Reserves Currency held in bank vaults can be considered as legal reserves as well as deposits (reserve balances) at the RBI. Since reserve balances can support a larger volume of deposit liabilities of banks, they are often referred to as high-powered money or the monetary base. Reserve balances and vault cash in banks, however, are not part of the money stock held by the public. For individual banks, reserve accounts can also serve as working balances. Banks can use the facility of electronic funds transfers by depositing cheque and proceeds to increase the balances in their reserve accounts they may also draw these balances by writing cheques on them or by sanctioning a debit to them in exchange for customers cheques, currency or other funds transfers.

Although reserve accounts can be used as working balances, each bank, on an average must maintain reserves at a relevant reserve maintenance period at the central bank and vault cash which together are same as the required reserves, which can be determined by the amount of its deposits in the reserve computation period. There are a number of factors that influence the fluctuations in bank reserves. However these reserves are liabilities of the RBI and the net changes in them are basically determined by actions of the reserve system. Thus, the RBI has the ability to vary both, the total volume of reserves as well as the required ratio of reserves to deposit liabilities. One of the major responsibilities of the reserve system is to maintain reserves consistent with the monetary needs of the economy at stable prices. Such actions take into consideration, how often the money is being used and changes in the public demand for cash balances. The RBI often exerts control through the market place because the individual banks find it either cheaper or expensive to obtain their required reserves, based on the willingness of the bank to support the existing rate of credit and deposit expansion. Working reserves Reserves held by banks above the minimum level or cash reserve ratio as permitted by law are called as working reserves. Working reserves can be in the form of vault currency, cash being collected, deposits at other banks and excess reserves held as deposits at the RBI. Banks typically hold a buffer of working reserves to stop their reserves falling below the minimum level due to large unexpected withdrawals. Inadequate working reserves lead to avoidable interest on borrowed reserves. On the other hand, high level of working reserves would mean missing out on large interest income on customer loans. A bank which is deficient of working reserves has several alternatives. It can borrow reserves from other banks and sell assets such as government securities, bid for funds in the money market, or pledge collateral and borrow at the RBIs discount window.

Answer-8 Formulating Loan Policy in Commercial Bank Banks have two goals in formulating their lending policy. They include loan volume and loan quality. The bank must balance these objectives with liquidity requirements, return objectives and capital and risk constraints. Though banks are the primary lenders to business, sources of funds can also be obtained from other sources such as, commercial finance companies, life insurance companies, commercial paper and so on. Banks do not grant loans for every purpose. They guarantee the liquidity and safety of their funds by granting loan for productive purpose. Apart from making loans and waiting for payments, lending involves supervising the loans to prevent losses. Loans with standard features and uniform loan applications are easily packaged and sold. The following are the principles of banks for lending: Identification of the borrower. Purpose of the loan. Quantum of loan. Period of loan. Source of repayment. Documentation. Sanction or acceptance of terms. The following are the main objectives of a loan policy: To achieve socio-economic objective. To offer sound assets, protect depositors funds and give maximum returns to shareholders. To balance the conflicting necessity of liquidity and earning. To ascertain a standard for control purposes. Factors Influencing Loan Policy in a Bank Let us now study the factors that influence the loan policy of a bank. As we studied in the previous sections, the primary function of a bank is granting of advances. This is the main source of a banks income. Lending money is a risk-taking process and therefore, a banker must be careful in this process. Every loan begins with is the application. When lending institutions get an application for a loan, the process of its evaluation and degree of complexity can vary. Some banks use a statistical credit scoring model to separate loan applicants expected to pay back their debts, from those who fall into arrears or go bankrupt. Ensuring total credit necessity of the credit market is an important factor influencing lending policies. The rapid growth of the market and new credit derivatives pose challenges to credit derivatives markets and to the financial system. The increasing complexity of credit-market flows raises measurement issues that had not fully engaged due to the unbundling and layering of debt. The other factors include evaluation of resources, local and national economic conditions, competitive position, capital position and monetary and fiscal policy. Monetary policy is a part of the overall economic policy of a country. It is employed by the government as a helpful tool to promote economic stability and achieve predetermined objectives. Monetary policy maintains total money supply and its management in an economy. It is basically a programme of action undertaken by the monetary authorities (the central bank) to control and regulate the flow of credit to achieve economic stability. Fiscal policy comprises of the deliberate use of budgets of central and state governments. The role of fiscal policy in economic development is to act as an allocator of resources. The Reserve Bank of India (RBI) declares the credit policy every year, reviews and monitors through various reports. It helps the government to plan, budget, advice banks to pursue its guidelines, control money supply, credit, foreign exchange, and so on.

Content of loan policy The loan policy of a bank must be specific so that credit officers can assess the credit worthiness of loan applicants easily. The best written loan policy is not effective unless its contents are regularly communicated to the lending staff. The communication ensures that each loan officer has a copy of the loan policy manual. The loan officers are trained to use the guide as a reference source, and it is necessary to describe the updates to the lending staff. Lenders, who are unaware that a bank has relaxed or revised its credit standards to some extent, may deny loans to applicants who would qualify under the new standards. Based on the lending policy of the bank decided at the corporate level, the bank should devise its loan policy for implementation, supervision and monitoring. Systems procedures laid down are implemented at various levels such as, branch, regional office, zone office and head or corporate office.

Answer-5 Introduction Following the extensive development of the marketing field, the consumer-goods marketing and the services marketing have resulted. The services marketing, as a distinct field, is characterized by a peculiar content where elements can be found similar to material goods (properly adapted) and other elements common to all services. It developed in two ways: one approaching the sector as a whole and another one specific to various categories of services, which underlies the appearance of some of its branches: bank marketing, tourism marketing, etc. The marketing-specific applications within the activities performed by the banking institutions that offer their products and services, realized in the banking sector, to companies or organizations, government, other financial institutions and population as well, designate the bank marketing. Bank marketing concept The bank marketing is a specialized field of the marketing and it has emerged following the extensive development of the general marketing and following the appearance, development, separation, delimitation, deepening and specialization of services marketing. The bank marketing concept evolved following the significant increase in the developed countries of the financial sector and implicitly the banking sector due to the appearance of new competitors, the market overcapacity and the competition intensification. The bank marketing is "the marketing that applies in the universal banks field (commercial banks as: savings and cooperative banks) and in the specialized banks field (actual credit institutions, investment companies, etc.). Besides the insurance companies and savings institutions for constructions, the banks are the most important offerers on the market of financial services. Today, on the market of bank services, there is a powerful competition, the transparency is more pronounced and the customers have become more critical and less fastidious, being better informed about the monetary and financial issues, but also better advised for this purpose. Therefore, many banks admitted the need to develop and implement professional and efficient bank marketing in the relationship with their own private customers". In the specialty literature, the bank marketing is also called marketing for services or for immaterial goods. Compared to other services, the banking products are distinguished by the fact that they are complex and abstract. Most of the customers do not easily understand what the financial services 1166 consist in, what benefit they bring and how they can be distinguished from one another. To this we can add the fact that the benefit of a banking service, for example a consultancy for the acquisition of a mortgage loan, for the placement of some shares or a funding for the execution of a construction, is exposed to an external insecurity, more than the other goods. The factors that influence these situations are the following: the evolution of national and world economy and the evolution of banking, monetary and capital markets. The exogenous insecurity and the immateriality generate a very high qualitative insecurity of the banking products for customers. Most of the banking products are mainly integrating, meaning that the customer takes part, more or less actively, in their realization. For banking services, the specialist Kaas K.P. emphasizes the importance of the customers giving some information about the standard financial data (income and patrimony), about their financial objectives for life planning, about their attitude towards risk, about the intended period of the commitment, etc. in interaction with the bank employees. The immateriality and the abstractization of the banking services lead to the fact that, compared to the offerers of material goods; it is more difficult for a bank to create lasting competition advantages. The innovating products, for example a special savings contract or a chip card, cannot be protected against the competition by patents or property know-how. A bank can create competition advantages by a high quality of the services, customer orientation and customer loyalty development. To that effect, resources are needed which, on short term, are not available to all competitors. Examples to that effect are the customers carefully chosen, formed and motivated to serve

the customers in an exceptional manner and also the information systems which allow the bank to optimally adapt its services to customer needs and restrictions882. The contemporary specialty literature shows numerous definitions of the bank marketing, more or less different, on the one hand due to the development level of the banking market and of the economy in the authors origin country and on the other hand due to the viewpoint in which the concept has been approached and perceived. The English specialists C. Ennew, T. Watkins and M. Wright, in their writing "Marketing Financial Services", considered that the bank marketing concept implies the achievement of the bank objectives by establishing the needs and wishes of the target customers and the supply of the needed satisfaction in a more efficient manner than their competitors"883. Another Belgian specialist Claessens R., in his writing "Marketing of retail banking products" stated that "The banks should identify the future needs and wishes of the customers and should use their own services and distribution channels in order to efficiently develop the integrated marketing concept on long term"884. In a brief formulation, the Romanian specialist Ionescu Lucian, in his writing Bank marketing elements states that the bank marketing represents the management of the processes leading to the satisfaction of the customer financial needs, in a manner profitable to the bank"885. Another Romanian specialist, Dedu V. considered that the bank marketing refers to the actions taken through banks in order to satisfy the customer needs private and companies886" The specialist Odobescu E., in his writing "Modern bank marketing", stated that the adaptation of the bank marketing concept, as an assembly of strategic and tactical decisions adopted in the management process and the bank existence, implies the consideration of the following elements: satisfaction of customer needs, increasing the bank profitability, employees involvement thus ensuring the cost control and the income maximization, social responsibility, the bank needing to have a responsible behavior"887. The bank marketing considers that the bank institutions must involve themselves to a great extent in the complex study of the customers (income level, lifestyle, financial situations, market positions, market shares, etc), they must try to influence their behavior and to keep a permanent and efficient communication in order to know better their preferences and demands, offering to them new and diversified products, constantly improved in quality, using a highly qualified personnel and in the same time efficiently using their own resources, thus ensuring their profitability increase.

Answer-6 Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. Developing of marketing strategy Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives. Plans and objectives are generally tested for measurable results. Commonly, marketing strategies are developed as multi-year plans, with a tactical plan detailing specific actions to be accomplished in the current year. Time horizons covered by the marketing plan vary by banks by banks however, time horizons are becoming shorter as the speed of change in the environment increases. Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned. See strategy dynamics. Marketing strategy involves careful scanning of the internal and external environments. Internal environmental factors include the marketing mix, plus performance analysis and strategic constraints. External environmental factors include customer analysis, competitor analysis, target market analysis, as well as evaluation of any elements of the technological, economic, cultural or political/legal environment likely to impact success. A key component of marketing strategy is often to keep marketing in line with a banking company's overarching mission statement. Once a thorough environmental scan is complete, a strategic plan can be constructed to identify business alternatives, establish challenging goals, determine the optimal marketing mix to attain these goals, and detail implementation. A final step in developing a marketing strategy is to create a plan to monitor progress and a set of contingencies if problems arise in the implementation of the plan. Types of strategies Marketing strategies may differ depending on the unique situation of the banking business. However there are a number of ways of categorizing some generic strategies. A brief description of the most common categorizing schemes is presented below: * Strategies based on market dominance - In this scheme, firms/banks are classified based on their market share or dominance of an industry. Typically there are four types of market dominance strategies: ** Leader ** Challenger ** Follower ** Nicher * Porter generic strategies - strategy on the dimensions of strategic scope and strategic strength. Strategic scope refers to the market penetration while strategic strength refers to the banks sustainable competitive advantage. The generic strategy framework (porter 1984) comprises two alternatives each with two alternative scopes. These are Differentiation and low-cost leadership each with a dimension of Focusbroad or narrow. ** Product differentiation ** Cost leadership ** Market segmentation* Innovation strategies This deals with the bank's rate of the new service/product development and business model innovation. It asks whether the bank is on the cutting edge of technology and business innovation. There are three types: ** Pioneers ** Close followers ** Late followers * Growth strategies In this scheme we ask the question, How should the banking firm grow?. There are a number of different ways of answering that question, but the most common gives four answers: ** Horizontal integration ** Vertical integration ** Diversification. Strategic models Marketing participants often employ strategic models and tools to analyze marketing decisions. When beginning a strategic analysis, the 3Cs can be employed to get a broad understanding of the strategic environment. An Ansoff Matrix is also often used to convey an organization's strategic positioning of their marketing mix. The 4Ps can then be utilized to form a marketing plan to pursue a defined strategy.

Answer-7 Commercial loans are bank loans that are granted to different types of business entities. In some cases, the commercial loan is extended to assist a company with short term funding for basic operational functions, such as meeting payroll or purchasing supplies that are used in the production of the goods manufactured and sold by the company. At other times, the commercial loan may be utilized to purchase new machinery that is directly connected to the operation of the business. The commercial loan is often thought of in terms of a short-term source of cash for a business. Some bankers offer a commercial loan format that is known as a renewable loan. Renewable loans allow the business to secure necessary funds, repay the balance within terms, and then roll the loan into a second or renewed period. This type of commercial loan is often employed when a company needs funds to secure resources to handle large seasonal orders from customers while still providing goods to other clients. As with most types of loans, the credit worthiness of the applicant will play a major role in the securing of a commercial loan. The business normally must present documentation that proves the stable cash flow of the company, thus ensuring the lender that the loan can be repaid according to terms. If approved, the borrower can anticipate to pay a rate of interest that is in keeping with the prime lending rate. Characteristics of Commercial loan In today's marketplace there are many ways for a person to get money for a business they might want to start. They can go to their friends and relatives for money or they can pull out a personal line of credit in order to fund their business. There are many other options available as well, one of which is known as the business loan.A business loan is a loan that is given out to an incorporated business by a bank, credit union or other financial institution. Rather than you being liable for the loan as you would be with a bank line of credit, the corporation that you have just created is the one responsible for the repayment of the loan. There are many characteristics inherent to the use of business loans for your company and some of these characteristics are discussed below. Liability - Perhaps the most obvious characteristic of a business loan is that quite often you will not be held liable for paying the loan back. Because a business loan is made to a corporate entity, if the corporate entity goes belly up and is unable to pay the loan, then the corporation will be liquidated in order to help pay part of it back. The corporation is the one that goes bankrupt rather than you personally. The lack of personal liability with business loans gives you a lot of freedom when it comes to managing your business. You have the freedom to take some chances and go out on a limb and in the case of many people in the past, that freedom has led to decisions that have proven extremely prosperous for the company. The mindset when no personal liability is present is completely different and that is definitely the most powerful advantage of a business loan. Size - Another important characteristic to business loans is that the size of the loan is often going to be larger. If you have good credit, chances are that you can get a line of credit from a bank worth around $10,000. While this is a large amount of money, there are some businesses that require loans far in excess of that amount. If you incorporate your business and go after a business loan however, you can get loans that are easily 10 to 25 times that amount. Business loans are serious and if you go after them you will get serious money in return. Motivation - There are many people in the world today that love to talk about motivation. They love to point to the different things that motivate someone and how a positive mindset of good feelings can lead to hire energy levels and motivation. Well, something else that leads to motivation is the feeling of self-confidence that comes from knowing that other people believe in your ability to succeed. Well, that belief is something that is part of the deal when you are given a business loan. With the loan is the implication that the other party believes you are going to succeed in your business and be able to pay the loan back. There are few things in the world that can provide as good a motivating factor as a successfully obtained business loan. Eligibility : The amount is based on the Market Value of the property (up to 70% of Market Value) and repayment capacity of the borrower (This is based on the financial strength and the existing loan track record of the borrower) Flexibility : Borrower can choose between EMI and an Overdraft facility Interest Rate : The interest rate offered under this product is very attractive (please refer to the interest rate chart) Speedy Process : The processing time is around 15 days once all the documents submitted are in order Easy Repayment : As long term loans are available, repayment becomes easier and cash flow can be managed efficiently.

Answer-10 (Short Notes)

Credit analysis - The objective of credit analysis is to find out the ability of the borrower to repay the loan. The analysis examines the past record and the economic prospects of the borrower. In most banks, the credit department information collects and analyses this information. While analysing a loan request, it is important to remember that the bank is the sole lender and not the borrower that owns the asset financed with the loan. Bank credit analysts have referred to the following five Cs of credit analysis: 1. Capacity - It is an evaluation of the customer ability to repay the loan. This is the most important C to the bank. Because, at the end of the day, the bank wants back its money it lends to customers. Capacity is evaluated by several components. There are: Cash Flow: It refers to the income a business generates versus the expenses it takes to run the business. For example, if a company generates RM10,000 a month of revenue, and it has expenses of RM8,000 a month, the lender would determine that there is RM2,000 a month in cash flow that could be used to repay the loan. A bank will normally takes the most 70% of the net cash flow (70% x RM2,000) to repay the loan. So, if the net cash flow (total inflow-total outflow) is low, the lender or borrower would have reason to be concerned about how the company plans to repay the debt. Payment history: It refers to the timeliness of the payments that have been made on previous loans. This situation is for existing customers. But, for a new customer, the bank can check his payment history from other banks through CCRISS or CTOS the worst. Contingent sources for repayment are additional sources of cash flow that can be used to repay a loan. These include personal assets, savings, current account and other investments. 2. Capital - Typically, a companys owner must have his own funds invested in the company before a bank will be willing to risk their own investment. Capital is an owners personal investment in his business which could be lost if the business is a failure. There is no fixed ringgit amount or percentage that the owner must be vested in his own company before he is eligible for a business loan. However, most banks want to see at least 25% of a companys funding coming from the owner before they apply a loan. Nevertheless, in the past 10 years, banks are willing to take more risk where margin of financing goes up to 95% of the total project cost. And lately, a bank is willingly to finance 100% of the asset cost. From risk management side point of view, banks who are ready to finance 100% of the project cost are considered risky banks and to the shareholders too, indirectly. 3. Collateral - Lands, landed properties, machinery, shares and other assets that can be sold if a borrower fails to repay the loan are considered collateral. Collateral always is an issue between a bank and a borrower, especially to the first time customer. 4. Condition - Conditions refer to overall evaluation on the proposed business or project. Analysis includes business objectives and purpose of the loan. We need to analyse that the loan can help the business to grow and not a burden to the borrower. Other conditions that we should consider are marketing, technical aspects of the project, economic and overall business conditions such as laws and regulations. These information you get from customers when they apply for a loan. As a banker, you should not have a problem to get these information as customers will provide you all documents before a bank approves a loan. 5. Character- Basically it is an evaluation of business owners personal history and his background. For a company, it is the history of the owners, the boards and the key management. As a banker, character is the most important C compares to other Cs. The reason is simple: a man makes things done or happened no the others. He is a mastermind to make a project successfully and pays the bank money! Do you agree? Banks have to believe that a business owner is a reliable individual who can be depended on to repay the loan. Background information such as credit history, education, and work experience are the factors in credit analysis. These information you get from customers when they apply a loan and it is normally a part of the banks loan procedures.

Short Notes Credit decision - The amount of time spent for verifying credit information must be relevant to the amount of credit requested. While evaluating credit, the length of time in business on credit must be considered. It is the time that a person has been using credit, or that a company has been in business. The most recognised individuals or companies, who have paid their bills on a timely basis, must be considered for a higher credit line. The age of the credit information is significant. If a credit file at the credit bureau is more than a year old, it must be updated. The kind of business for a commercial account and the employment of a consumer are closely linked while considering an applicant for credit. The type of business is very important while dealing with commercial accounts, and the sort of employment is a valid consideration in granting credit. The other considerations for credit decision include the following: = Income - While dealing with consumers and commercial accounts, it is necessary to determine if the applicant has sufficient income to repay the debt. = Current obligations - The applicants financial obligations directly affects the chances for repayment on a timely basis. = Payment history - The applicants financial past determines if the customer repays the amount within terms. = Bank references - The bank accounts listed on the credit application indicates the type of bank accounts and the current balance. = Effect of products on monthly obligations - This is a consideration for commercial customers. Many companies sell products that help their customers cut expenses. Therefore, a bank must be aware of the products impact on the applicant while making the credit decision. Mobilisation of deposit is one of the main functions of banking business and so an important source of working fund for the bank. The District Central Cooperative Banks (here in after CCB) have to increase their financial resources by way of deposit mobilisation. Deposit mobilisation is an indispensable factor to increase the source of the CCBs to serve effectively. The importance of deposits of the cooperative banking structure to provide satisfactory service to any programme of agricultural production and industrial manufacturing hardly needs to be over emphasised. Several committees and commissions have stressed that the CCBs must tap deposits from urban and rural areas so that they may be able to provide funds in large amounts to primary societies for farm and non-farm development. The success of the banking greatly lies on the deposit mobilisation performance of the bank as the deposits are normally considered as a cost effective source of working fund. The bank is operating various deposit schemes such as current, savings, fixed, recurring and other special schemes to meet the varying requirement of the customers. One of the important objectives of the CCBs is the mobilisation of rural savings. It helps to expand loaning operations. The philosophy of cooperation emphasises that cooperative institutions should function only with the funds pooled from members and not to rely largely on external financial accommodation. The All India Rural Credit Survey Committee (1954), Mehta Committee (1960) and Banking Commission (1972) have recommended that the CCBs could engage in the mobilisation of deposits for improving the internal resources. Contrary to this principle, the concessional finance available to the CCBs from the RBI made them indifferent to the function of mobilisation of deposits. To mobilise deposits, the CCBs are given some encouragement by the RBI and apex institutions such as subsidy for branch expansion, states participation in share capital, permitting the CCBs to offer 1/2 per cent interest higher than the commercial banks and application of deposit insurance scheme.