LITERATURE REVIEW

Though there is a slight decrease in lending during the period 2008-09, the bank has increased
the lending’s substantially. The total amount of loans and advances as on 31.03.2008 is 26796.70
lakhs.

SHORT TERM LOANS:

Keeping in view, the increase in market prices of fertilizers, labour, seeds, pesticides and also
with a view to help farmers to the maximum extent of their input and requirements the IMBP
(Individual Maximum Borrowing Power) was increased from Rs.15000 to Rs.20000. The
progress under crop loans disbursed

CONTENTS OF BANK LOAN POLICY:

 Size of loan account
 Composition of loan portfolio
 Acceptable security
 Lending criteria
 Maturity
 Compensating balance
MONITERING SYSTEM:
The working of the cooperatives are being monitored by the Financing Agency i.e.,
DCCB&APCOB and the Governmental Agency i.e., Registrar of co-op societies (RCS) in the
form of supervision of lending, utilization of loans, recovery of loans, periodical inspections
development and audit, to arrest any sort of irregularity in the functioning of the societies.
As the major share of lending in the ru0ral areas is belonging to the cooperatives, but the
deposits tapped are not in the same proportion as of lending and to inculcate the habit of savings
in the rural areas through the societies, a financial aid is being provided to them to the extent of
Rs.80, 000 with the following constitution for acquiring the basic infrastructure necessary for
banking activities.
LOANS AND ADVANCES

The origin of commercial banking can be traceable in the early times of the human
history. The in ancient Rome and Greece the practice of storing precious metals and coins at safe
places and loaning out money for public and private purposes on interest was prevalent. In
England banking had its origin with the London goldsmiths who in the 17th century began to
accept deposits from merchants and others for safe keeping of money and other valuables. As
public enterprises, banking made its first appearance in Italy in 1157 when the bank of Venice
was founded.
According to Crowther, modern banking has three ancestors:
• the merchant
• the goldsmith
• the money lender

MEANING OF A BANK:
A bank is an institution, which deals with money and credit. According to Crowther , a bank
“collects money from those who have it to spare or who are saving it out of their incomes, and it
lends this money to those who require it.” In the words of Kinley, “a bank is an establishment
which makes to individuals such advances as money as may be required and safely made, and to
which individuals entrusts money when not required by them for use.”
In short, the term bank in the modern times refers to an institution having the following features:
a) It deals with money; it accepts deposits and advances loans.
b) It also deals with credit; it has the ability to create credit. i.e., the ability to expand its
liabilities as a multiple of its reserves.
c) It is a commercial institution and it aims at earning profit.
d) It is a unique financial institution that creates demand deposits which serve as a medium
of exchange and as a result, the banks manage the payment system of the country
FORMULATING LOAN POLICY IN A BANK

Formulating and implementing loan policies is amongst the most important responsibilities of
bank directors and management. Since formulating a definite loan policy for the bank calls for
expertise, knowledge and experience in various aspects of a bank credit, the Board Of Directors
enlist the services and cooperation of the banks credit officers, who are well-versed in the
techniques of lending and are familiar with external and internal forces that have their bearing on
the lending activities of the bank. The credit polices is the outcome of joint efforts of Board Of
Directors and Credit officers of the bank.

In deciding the loan policies, the policy formulators must be very cautions, for the lending
activity of the bank affects both the bank and the public at large. They should give serious
consideration to all factors that are likely to influence the loan policies and work out their
policies accordingly. The important factors which go into the determination of the loan policies
of a bank are

1. Capital position

2. Earnings requirement

3. Deposit variability

4. State of local and national economy

5.
INTEREST RATE AND ITS IMPORTANCE IN DECIDING A LOAN:

Interest plays an important role in the working of a bank since RBI has deregulated the
interest policy. The banks are at liberty to fix up their own deposit interest rates and lending rates
based on their profitability in order to compete with other banks. The bankers as per the schedule
of interest rates prescribed by the Reserve Bank of India from time to time charge the interest on
advances. These rates are subject to change. In order to overcome the difficulty experienced by
the banks in implementing such interest rates, the bankers usually get the following provision
inserted in the loan agreements as regards interest rates:
“…provided that the interest payable by the borrower shall be subject to the changes in the
interest rates made by the Reserve Bank of India from time to time.”
The effect of such clause is that whenever the RBI revises the interest rates, they are
automatically applicable we’d. the date to revision to all existing loan agreements. A person
would like to go for a bank, which is providing a loan at a lower rate of interest. He will evaluate
one among many alternatives. The profits of the bank mainly depend on the interest rates.
Interest is charged on the loan issued which is an income to the bank. Interest paid by the bank
for the deposits made by the public, which forms an expense to the bank. The difference between
the yield on the funds (interest on loans) and the cost of funds (interest on deposits paid) is called
as the interest spread.
Profitability earnings, expenses and balance of a bank are governed by several factors.
Profitability is directly related to

 Efficiency in the management of loans and advances portfolio

 Staff productivity and
 Capacity to get ancillary and non-fund based industries.