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Analysis of loans and advances

MEANING OF FINANCE

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

Finance is also the science and art of determining if the funds of an organization are being used

Through financial analysis, companies and businesses can take decisions and corrective actions to

sources of income and the expenses and investments that need to be made in order to stay competiti

Finance is the life blood of business. It flows in mostly from scale of goods and services. It flow

meeting various types of expenditure. The activating element in any business which may be on ind commercial undertaking is the finance.

Business finance has been defined as those activities which have to do with the provision and ma

of funds for the satisfactory satisfact ory conduct of a business. Business Busi ness finance financ e is defined as that busines busines which is concerned with the acquisition and conservation of capital funds in meeting the financial overall objectives of business enterprises. So we can sa y business business finance is mainly developed around three major objectives.

Master your semester with Scribd Read Free Foron 30this Days Sign up to vote title Secondly, to conserve and increase the capital t hrough better better management, & The New York Times  Useful  Not useful Firstly, to obtain an adequate supply of capital for the needs of the business,

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

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INDIAN FINANCIAL SYSTEM The financial system syst em or the financial sector of any a ny country consists of specialized and non

financial institutions of organized and unorganized financial markets of financial instruments and which facilitate transfer of funds procedures and practises adopted in the markets and

interrelationship, are also part of the system. The structure of a financial system in any econo follows: UNORGANISED MARKETS

In these markets consist of many lenders, indigenous bankers, transfers and private chit funds e

activities are not controlled by RBI. Recently the RBI has taken steps to bring private function c and chit funds its strict control but using non banking financial companies directions in 1998. ORGANISED MARKETS

In these markets there are standardized rules and regulations by Reserve Bank of India regulatory bodies. The organized markets can be further classified into two. They are: ar e: 1) Capital markets. 2) Money markets.

Mastermarket yourfurther semester with Scribd divided into three mainly: & The New York Times

CAPITAL MARKET: It is a market for long term funds which have a long or indefinite maturity.  Read Free Foron 30this Days Sign up to vote title

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a) Industrial Indu strial Security market: It is a market for industry security namely equity shares or ord Special offer for students: Only $4.99/month. shares, preference share, debentures or bonds. It is a market where industrial concern raises

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b)

gilt-edged securities market. It is a marke Government Government Securities Market: It is also called gilt-edged government government securities ar e traded (long term securities)

FINANCIAL INSTRUMENTS

A financial instrument refers to these documents which represent financial clai ms on assets Financial instrument can a lso be called financial securities. securities. These instruments are classified a) PRIMARY SECURITIES: Shares and debentures issued directly t o Public.

b) SECONDARY SECURITIES: These securities issued by some inter mediaries ex; UTI Mutual fund again these securities may be classified on the basis of duration as follows. y

Short Term Securities: Within one year ex; bills of exchange.

y

Medium Term Security: Maturity period between 1-5 years ex; debentures.

y

Long Long Term Ter m Securities: Maturity period more than 5 years ex; Gilts.

FINANCIAL SERVICES

a) MERCHANT BANKING: A merchant banker is a financial intermediary who helps t

capital from those it to those who need it.

b) LOAN SYNDICATION: Much number of banks joins together and forms a syndicate t

loan as big sum to corporate. c) LEASING: A leasewith is an agreement under which a company acquires a right to make use Master your semester Scribd  Read Free Foron 30this Days Sign up to vote title  assets like machinery for agreed period in return for periodic payment of rentals . & The New York Times  Useful  Not useful Cancel anytime.

d) HIRE Special offer for students: OnlyPURCHASE: $4.99/month. It is an agreement relating to transaction in which goods are let on hir

e) FACTORING: It is an agreement under which a financial intermediary assumes the cre

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MEANING OF BANK

Banking is one of the most important sectors of business and finance that assists the world of com

keep on running. Without banks and the banking services that they provide, commerce and tra collapse and credit would become virtually extinct. As the decades progress many new concepts

introduced into banking. At their most basic, banks hold money on behalf of customers, which is p the customer on demand, either by appearing at the bank for a withdrawal or by writing a check

party. Banks use the money they hold to finance loans, which they make to businesses and individu

for operations, mortgages, education expenses, and any number of other things. Many banks also

other services for a fee; for instance they offer certified checks to customers guaranteeing payme

parties. In some countries they may provide investment and insurance services. With the ex

Islamic banks, they pay interest on deposits and receive interest on their loans. Banks are regulat

laws and central banks of their home countries; normally they must receive a charter to engage in Banks are usually organized as corporations.

DEFINATION OF BANK

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

following: receives demand deposits and time deposits, honours instruments drawn on them, Mastertheyour semester with Scribd  Free For 30this Days Sign up to vote on title interest on them; discounts notes, makes loans, and invests inRead securities; collects checks, drafts, a  & The New York Times  Useful  Not useful certifies depositor's checks; and issues drafts and cashier's checks. Special offer for students: Only $4.99/month.

Cancel anytime.

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Likewise, they lend or invest only for short durations. They provide funds only for short te

of trade and commerce. These banks cannot invest credits and overdrafts as they are expecte

the immediate requirement of depositors. The commercial banks provide a vital serv

customers, a simple means of medium of exchange called cheques. They also perform a larg of agency functions to their customers for which they charge a commission.

2.

INDUSTRIAL/ INVESTMENTS BANKS:

Investment banks, also called industrial banks, are those banks which provide funds

for industries. They are specialized in providing long term loans to industries with a vie plant, machineries, etc. These banks obtain funds through share capital, debenture and deposits from the public. The bank floats bonds for the sake of mobilizing funds to provide big industrial corporations. They also underwrite or issue new shares and debenture of

companies. They also purchase entire issue of new securities of company and later sell them at higher prices.

3.

EXCHANGE BANKS:

Exchange banks are known as foreign banks or foreign exchange banks. These b

provide foreign exchange for import trade. Their main function is to make international

the purchasewith and sale of exchange bills. The exchange bank provides assistan Master yourthrough semester Scribd  Read Free Foron 30this Days Signbills up towhich vote titlein foreign tra conversion of currencies. They discount foreign exchange are used  & The New York Times  Useful  Not useful Special offer for students: Only $4.99/month. 4. CO-OPERATIVE BANKS:

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artisans, petty shop-keepers etc. They have been classified into land development bank mortgage banks and urban credit-oriented banks. 5.

SAVINGS BANK:

Savings banks are specialized financial institution establishment to mobilize sav

the people. They pool the savings of the small incomes of the community. The savin

accounts have been provided by all commercial and co-operative co-operative banks and even post p ost office

bank business business has become more prominent prominent than others forms forms of accounts as it provi facilities like frequent withdrawals, attractive rate of int erest, the use of cheq c heques ues etc. 6.

CENTRAL BANK (RBI):

Central bank is an apex bank in the country. It brings the entire banking system

controlled and regulated. It is the main source of an efficient banking system in the cou

monetary policy poli cy of a country countr y is formulated formulate d and enforced enforce d by the central central bank. It is respo

monetary stability in the country. The expansion and contraction of note issue are manag

central bank. It functions as a banker to the government and commercial banks. It as government in the implementation of various economies policies.


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FUNCTIONS OF BANKS

Prof. Sayers in his book µModern Banking¶ has described the functions of a modern bank in the fol words: ³Ordinary banking business consists of changing cash from bank deposits and bank deposits

transferring bank deposits for cash, transferring bank deposits from one person to another and giving deposits in exchange of bills of exchange, government bonds, the secured promises of businessmen and so forth.´ The various functions of a modern bank are as follows: 1.

Accepting deposits from public:

The major function of the commercial banks is accepting various types of deposits such

deposits, current deposits and savings deposits. People want to keep their cash balances safe for w

deposit it with a bank. The commercial bank protects the cash of the customers and provides a co

method of transferring funds through the use of cheques. It is the obligation of bank to honour drawn upon the bank, making payment across the counter on demand by the customers to the money available at the credit of customer¶s account. y

Fixed deposits:

A fixed deposit is one where a customer keeps a certain amount of money in a b

Master yourspecific semester with Scribd  depo period. It may be 6months, 1 year, 2 years Read 3 years 5 on years. The fixed Free For 30this Days Sign up toor vote title  & The New expected York toTimes be withdrawn before the expiry of the period.  Useful  Not useful Special offer for students: Only $4.99/month. y Saving deposits:

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maintain a minimum credit balance of Rs. 500. At the same time current holders has to pa charge.

2.

Making loans and advances The second main function function of the commercial banks is to provide provide loans and advances

money the bank receives by the way of deposits. The bank receives deposits in order to lend the s this function of a banker¶s activities which is the largest contributor to the bank¶s profit. Comme

provide various types of loans such as direct loans, cash credit, bills discounted and overdrafts e loans and advances are provided to all types of persons against the security of movable properties. 3.

Agency services-

Another important function of a banker is the services offered by them as an agent. The commercial b a significant service by providing to its customers a simple means of medium of exchange called cheques.

system is considered to be the most developed type of credit instrument. The banks perform miscellaneou

such as undertaking th e payment subs criptions, insurance premium, rent, etc. On the behal f of the cust

collect cheques, bills, salaries, pensions, dividends, interests, etc that belongs to the respective acco

customers. The banks p erform these functions as p er the instructions given by the customers a nd make p and when directed. For these services the y charge a certain amount of fee by means of commission.

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A banker performs many general utility personal or miscellaneous services for his custom

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general utility services include the safe- keeping of valuables and documents, the issue of credit in

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EVOLUTION OF BANKING

Banking is an ancient business with its history dated back to t o the 13th century. When the first bill of

was used as money in the medieval trade. tra de. Banking in India as its origin as early has the Vedic perio

the days of east India Company, it was the turn of the agency house to carry out the banking busi

general bank of India was the first joint stock bank to be established in the year of 1886. The o

followed are the Bank of Hindustan and the Bengal Bank. In 1891 the first purely Indian Bank t hat

Commercial Bank came into being. The setting up of Punjab National Bank in 1894 followed it.

three bank namely Bank of Bengal (1809), Bank of Bombay (1840), Bank of Madras (18

amalgamated and a new bank, Imperial Bank of India was established. The Reserve Bank of India

the Central bank, was created in 1935, with the passing Reserve Bank of India act in 1934. Later passing of State Bank of India in 1955 the undertaking of Imperial Bank of India was taken over

constituted State Bank of India. In the wake of Swadeshi Movement in 1905 no. of Bank wi

Management were established in the country namely name ly Punjab National Bank Ltd. Ltd. The Bank of Barod

Bank of India (1906) Canara Bank Ltd. Indian Bank Ltd, Central Bank of India Ltd. (1911). ON th

1969, 14 major Banks of the country were nationalized and on 15 April 1980 six more Commerc

Banks were also taken over by the government of India. Banking Industry has achieved a tre

progress during the past few years; many Banks and Financial Institution have entered into the m have made a rapid growth towards achieving the ultimate object of attaining leadership in Banking



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