Explain two methods adopted by Commercial Banks to advance loans to the general public.
The two methods adopted by commercial banks to advance loans to the general public are as under -
(i) Overdraft - The overdraft facility is allowed to the depositor maintaining a current account with the bank. According to this facility a borrower is allowed to withdraw more amount than what he has deposited. The excess amount so withdrawn has to be repaid to the bank in a short period and that too with interest. The rate of interest is usually charged more than that charged in case of loans.
(ii) Discounting of Bills of Exchange - The banks provide financial help to the merchants and exporters by way of discounting their 'bills of exchange'. However, these merchants and exporters must be the customers of that bank. In such facility, the bank pay the amount of bill presented by the customer, after deducting the usual bank discount. This way, the customer gets the amount of the bill before the date of its maturity. As such, the bank assists its customers to a great extent by accepting their bills and providing them with liquid assets. Usually a bill matures after 90 days or so and then the bank presents it to the acceptor and receives full amount of the bill.
The two methods adopted by commercial banks to advance loans to the general public are as under -
(i) Overdraft - The overdraft facility is allowed to the depositor maintaining a current account with the bank. According to this facility a borrower is allowed to withdraw more amount than what he has deposited. The excess amount so withdrawn has to be repaid to the bank in a short period and that too with interest. The rate of interest is usually charged more than that charged in case of loans.
(ii) Discounting of Bills of Exchange - The banks provide financial help to the merchants and exporters by way of discounting their 'bills of exchange'. However, these merchants and exporters must be the customers of that bank. In such facility, the bank pay the amount of bill presented by the customer, after deducting the usual bank discount. This way, the customer gets the amount of the bill before the date of its maturity. As such, the bank assists its customers to a great extent by accepting their bills and providing them with liquid assets. Usually a bill matures after 90 days or so and then the bank presents it to the acceptor and receives full amount of the bill.
