Meaning & Causes of Disequilibrium in Balance of payment

Meaning of Disequilibrium in Balance of Payment.

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Though the credit and debit are written balanced in the balance of  payment account, it may not remain balanced always. Very often, debit exceeds credit or the credit exceeds debit causing an imbalance in the balance of payment account. Such an imbalance is called the disequilibrium. Disequilibrium may take place either in the form of deficit or in the form of surplus. Disequilibrium of  Deficit arises when our receipts from the foreigners fall below our payment to foreigners. It arises when the effective demand for foreign exchange of the country exceeds its supply at a given rate of exchange. This is called an 'unfavourable balance'. Disequilibrium of Surplus arises when the receipts of the country exceed its payments. Such a situation arises when the effective demand for foreign exchange is less than its supply. Such a surplus disequilibrium is termed as 'favourable balance'.

Causes of Disequilibrium in Balance of Payment.

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1. Population Growth :

Most countries experience an increase in the population and in some like India and China the population is not only large but increases at a faster rate. To meet their needs, imports become essential and the quantity of imports may increase as population increases.

2. Development Programmes :

Developing countries which have

embarked upon planned development programmes require to import capital goods, some raw materials which are not available at home and highly skilled and specialized manpower. Since development is a continuous process, imports of these items continue for the long time landing these countries in a balance of payment deficit.

3. Demonstration Effect :

When the people in the less developed countries imitate the consumption pattern of the people in the developed countries, their import will increase. Their export may remain constant or decline causing disequilibrium in the balance of payments.

4. Natural Factors

Natural calamities such as the failure of rains or the coming floods may easily cause disequilibrium in the balance of payments by adversely affecting agriculture and industrial production in the country. The exports may decline while the imports may go up causing a

discrepancy in the country's balance of payments.

5. Cyclical Fluctuations :

Business fluctuations introduced by the operations of the trade cycles may also cause disequilibrium in the country's balance of payments. For example, if there occurs a business recession in foreign countries, it may easily cause a fall in the exports and exchange earning of the country concerned, resulting in a disequilibrium in the balance of payments.

6. Inflation :

An increase in income and price level owing to rapid economic development in developing countries,

will increase imports and reduce exports causing a deficit in balance of payments.

7. Poor Marketing Strategies :

The superior marketing of the developed countries have increased their surplus. The poor marketing

facilities of the developing countries have pushed them into huge deficits.

8. Flight Of Capital :

Due to speculative reasons, countries may lose foreign exchange or gold stocks People in developing countries may also shift their capital to developed countries to safeguard against political uncertainties. These capital movements adversely affect the balance of payments position.

9. Globalisation :

Due to globalisation there has been more liberal and open atmosphere for international movement of goods, services and capital. Competition has beer increased due to the globalisation of international economic relations. The emerging new global economic order has brought in certain problems for some countries which have resulted in the balance of payments disequilibrium.

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Different Types / Classification of Security.

Security is what the borrower puts up to guarantee payment of the loan. Moreover security means immovable & chattel or personal asset or assets to which a lender can have recourse if the borrower defaults in the loan payment. 

There are two types of banks security.

A. Personal Security.

B. Non-personal security.

A. Personal security :

If any banks client himself or third party is considered as security is called personal security. without receiving the immovable & chattel assets as security, if bank can receive any client himself or any person own self on be half of that client as security is considered as personal security. Bank will consider the person or third party only for then when he has enough social dignity and goodwill or a scope of applying law against himself in future or he is engaged in renowned business, government or recognized non government organization.

B. Non-personal security :

without receiving any client himself or any person own self on be half of that client as security , if bank can receive the immovable & chattel assets as security is considered as non-personal security. There are four types of non-personal security. such as-

1. Lien.

2. Pledge.

3. Mortgage.

4. Hypothecation.

The above four categories of non-personal security are given below with detail.

1. Lien :

The right of retain foods is known as lien. The lawful right of a lender to offer the guarantee property of an account holder who neglects to meet the commitments of an advance contract. A lien exists, for instance, when an individual takes out a vehicles advance. The lien holder is the bank that allows the advance, and the lien is discharged when the credit is forked over the required funds. Another kind of lien is a repairman's lien, which can be appended to genuine property if the property proprietor neglects to pay a foreman for administrations rendered. In the event that the account holder never pays, the property can be sold to pay the lien holder. there are two types of lien.

i) General lien.

ii) Special lien.

i) General lien :

Here, Bank has the possess of the assets have been kept as security and bank can't transfer the possession to another until the loan amount is being paid.

ii) Special lien :

Here, Bank has the possess of the assets have been kept as security and bank can transfer the possession to another on conditions is called special lien.

2. Pledge :

Here the possess of assets is to bank or loan provider, but the ownership is to borrower. After payment,  bank transfers the possession of security assets to borrower. When  a customer takes loan against jewels he pledges the jewel to the bank.  Similarly a customer availing loan on key cash credit basis pledges the  goods to the banker by keeping them in a godown under lock and key  control of the bank. Pledged goods are to be insured and the pledgee  (banker) has to take reasonable care to protect the property pledged.

3. Mortgage :

It is an interest in property created as security for a loan or payment of debt and terminated on payment of the loan or debt. A mortgage is a contract that permits a loan provider partially or fully to foreclose that security when a borrower is unable to pay the loan amount. Mortgage is applicable only for immovable assets and this is why it is called immovable property mortgage. There are many types of mortgage have been described below.

i) Simple mortgage :

If the loan amount isn't paid by borrower and legal step is taken against him or lender can purchase which security assets on the opinion of borrower  is called simple mortgage.

ii) Fixed mortgage :

The borrower gives which property  in black & white or in registering to the lender and if the loan is not paid in time, then legal possession of that security is gained by lender is called fixed mortgage.

iii) Conditional mortgage :

If the loan amount isn't paid in time and without fulfilling the determined conditions,  the which security is not sold or transfered is called conditional mortgage.

iv) Floating mortgage :

The possession right of which mortgage properly is belonged to borrower and only documents are submitted to loan provider is called floating mortgage.

v) Equitable mortgage :

The documents of which mortgage property is kept to bank for a specific time period and possession is belonged to borrower and after exceeding the payment period bank try to gain the legal possession is called equitable mortgage.

vi) Registered equitable mortgage :

The ownership documents of which mortgage property is kept to lone provider with registration for a specific time period and possession is belonged to borrower is called registered equitable mortgage.

vii) Use fructuary mortgage :

The  possession & consumption of which mortgage property is given to loan provider as loan providing till a specific time period and after exceeding that time period the belongingness of that property is leaved to borrower is called use fructuary mortgage.

viii) English mortgage :

The ownership of which mortgage property is to loan provider and possession or belongingness of that property is to borrower is called English mortgage. If borrower is fail to pay the loan amount  then the possession power is automatically gone to loan provider.

4. Hypothecation :

It is pledge to secure an obligation without delivery of title or possession.

At last we can say that, at the modern banking sectors a great changes has been occurred in the categories of categories of mortgage.

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Considering Factors / Features / Elements of Good Security.

The  immovable & chattel assets that are received by bank as certainty is called Security of Credit.

Considering Factors / Features / Elements of Good Security of credit are given below with two senses  :

1. Qualities of Personal Security.

2. Non - Personal Security.

1. Qualities of Personal Security :

Bank considers which Qualities of Personal Security are ad follows -

a) Financial solvency :

It means financial capabilities of clients. If the financial capability of personal guarantor is better then loan can be easily got. So, bank also considers the financial condition or solvency of personal guarantor.

b) Ability of credit using :

Bank considers whether the person may take loan is certainly capable to use that possible credit in profitable & developed sectors or not. Bank also gives credits to the person who has highly capabilities of credit using .

c) Social Status :

A personal  security Provider is to be a social recognized & prestigious person. Because, against personal security bank only provides credits to the person who has a great status & recognition.

d) Good Relation :

Bank feels comfort to provides loan against personal security only to such persons who have more excellent & better relation to bank.

e) Honesty :

All persons in this society like an honest individual. The persons who can prove honesty in financial translations are highly acceptable to bank as personal security.

2. Non - Personal Security :

Bank also considers which qualities as non-personal security are given below with described form.

a) Liquidity :

Deposits  are the life blood of a bank. Investors are repayable on interest or after expiry of a certain period. Everyday  investors either store or withdraw money. To fulfill the demand for cash, all banks need to keep certain measure of trade in for spendable dough their custody. This is why, bank receives such wealth as security which have highly Converted power to liquidity.

b) Acceptability :

Bank will consider whether the assets are kept as security is legally acceptable or not.

c) Ownership :

Bank is to think whether the loan receiver has complete ownership on the  immovable & chattel assets that are received by bank as certainty or not.

d) Price of Assets : 

Bank is to be conscious to the value of assets. The value of assets must be higher then the loan amount.

e) Marketability :

It is favourable for bank if the asset will be kept to bank as mortgage is convertible in cash after easily selling. So, bank considers that asset is better which has easy selling power.

f) Liability free:

The mortgage property must be free from liability. So, bank will consider as though the security may not be liable to any people or organization.

g) Price stability :

The price of which security assets is not highly unstable may be considered by bank as perfect or better security.

h) Possession :

Bank should considered who is the possessor of the assets will be kept to bank as security.

I) Transferability :

The  security asset is easily transferable will be better for bank to keep it as security.

j) Determinability of price :

The price of which security assets is easily determined should be considered by bank as better security.

k) Easy Store ability :

Bank likes those products which have easy store ability.

l) maintenance cost :

Bank considers that assets as perfect security of which maintenance costs is less and bank should receive that assets as security or mortgage.

At last it is said that, bank also try to receive mortgage which is more secured & favourable for itself by following a few facts beside the above described facts.

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Security of Credit .

Definition:

Bank wants the certainty of getting back the loan amount. So, bank takes such step to get back loan amount so that there shouldn't have any problem and this is why bank receive mortgage from expected borrower as certainty of loan. The  immovable & chattel assets that are received by bank as certainty is called Security of Credit.

"Security is what the borrower puts up to guarantee payment of a loan."

(Dictionary of banking & finance)

"Security is meant to be an insurance against an emergency." (Bedi & Hardikar)

" Security means an asset or assets to which a lender can have recourse if the borrower defaults in the loan payment " (Oxford dictionary of business)

At last it's said,  loan or advance made on the security of assets the market value of which isn't any time less than the amount of such loan or advance.

Necessity / Importance / Objectives / Advantages of Security.

Bank wants the certainty of getting back the loan amount. So, bank takes such step to get back loan amount so that there shouldn't have any problem and this is why bank receive mortgage from expected borrower as certainty of loan. The  immovable & chattel assets that are received by bank as certainty is called Security of Credit. The objectives & importance of security of credit are given below with detail :

1. Confirmation of loan recovery :

Bank receives security as confirmation of loan recovery. There is no problem at all to getting back the loan amount even in bankruptcy & great losing of business man that means borrower.

2. Increasing funds flow :

If the assurance of loan recovery is got the bank disburses more loan. As a result, the flows of fund in business is ensured and raised.

3. Development of trade-commerce :

The flows of fund is increased in trade - commerce due to security and that sectors are developed.

4. Industrialization :

The force of industrialization is continued because of providing loan by bank against security in placement & expansion of industry.

5. Advising :

Bank also gives an advice to its clients about which sectors is better for investment or from where more outcome will be gained.

6. Loan security :

Mortgage creates the security of credits recovery. If borrower fails to pay the loan amount then selling that mortgaged properties  bank collects its providing loan amount.

7. Creating the responsibilities of borrower :

keeping security bank provides loan. This is why the borrower feels stress to pay the loan.

8. Free from bad debts :

The uncertainty of getting bank the loan amount is lessen due to prove loan against security that means the possibility of creating bad debts is absent.

At last it is said that, bank receives security or mortgages as  the certainty of getting back the loan amount. Moreover, the credits and advances through mortgage increase so profits as goodwill of bank is raised.

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Classification of Letter of Credit. (L/C)

Letter of Credit (L/C) means a loan document or instrument where bank, importer & exporter concerns, are  issued by bank on behalf of importer to ensure payment to exporter on specified written condition. L/C is an important element of foreign trade. On the basis of using condition,  certainty of financial payment L/C may be various categories or types are given below with detail :

1. Documentary L/C :

There are such conditions in which L/C that, bank will recognized to the bill only then when various documents like insurance policy, bill of lading, invoice etc will be placed with the bill is called documentary L/C.

2. Clean L/C :

There are no such conditions of  various documents will be attached  with the bill and bank pay the bill of which L/C is called clean L/C.

3. Confirmed L/C :

In which L/C bank gives an assurance and confirmation of recognizing the bill of exporter is called confirmed L/C. Bank can't cancel such letter of credit before expired of due date.

4. Unconfirmed L/C :

In which L/C if bank gives an assurance and confirmation of recognizing the bill of exporter and can cancel such letter of credit before expired of due date is called unconfirmed L/C.

5. Fixed L/C :

The L/C which is opened for specified amount  of money in a particular time period and is considered as void after a fixed duration,  is called fixed L/C. After payment of a bill of specific amount, the mechanism of such L/C is automatically finished.

6. Revolving L/C :

A L/C opened for a total amount up to which bills drawn may remain outstanding at a time is known as revolving L/C.

7. Open / Revocable L/C :

The issuing bank can cancel which L/C in any time is called  Open / Revocable L/C. Moreover bank is bound to give recognition of if the bill is prepared and placed before dismissing the bill.

8. Irrevocable L/C :

The issuing bank can't cancel which L/C in any time even at the death and insolvency of client, is called irrevocable L/C.

9. Marginal L/C :

The bill form is available on the margin side of which L/C is called marginal L/C. Filling up the bill form, it is placed on the bank for recognition.

10. Anticipatory L/C :

The L/C which is issued for advance payment of the receivable money of exporters or sellers is called Anticipatory L/C. There are two types of Anticipatory L/C. Such as -

i) Red Cause Anticipatory L/C.

ii) Green Caused Anticipatory L/C.

i) Red Cause Anticipatory L/C :

By which L/C, bank manage the advance payment of shipment costs, insurance, customs, carrying cost of products to exporters is called Red Cause Anticipatory L/C. Such L/C is written with red coloured ink or paper.

ii) Green Cause Anticipatory L/C :

By which L/C, bank manage the advance payment of warehouse costs of products to exporters is called green cause anticipatory L/C. Such L/C is written with green coloured ink or paper.

11. Travellers Letter of Credit :

Travellers Letter of Credit is a L/C which a bank issues travellers for the convenience of the persons who want to travel with in the country or abroad. It is two types. I) Direct Letter of Credit ii) Circular Letter of Credit.

12. Back to back L/C :

Agreement in which one unavoidable letter of acknowledge serves as the insurance for another; the educating bank concerning the first letter of credit turns into the issuing bank of the second letter of credit. As opposed to a transferable letter of credit, authorization of a definitive purchaser (the candidate or record gathering of the first letter of credit) or that of the issuing bank, is not needed in a back to letter of credit. It is utilized mainly by middle people to shroud the personality of the genuine supplier or maker. It is also called counter credit or complementary letter of credit.

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Definition & Importance of Letter of Credit (L/C)

Definition of Letter of Credit (L/C)

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No direct cash translation isn't practised in foreign trade. Exporter can't be pre-known to importer. So, the certainty of cash payment is needed to it. Bank ensures the exporter to pay the value of exported goods & services on behalf of importer by Letter of Credit (L/C) which is an important bank document in foreign trade.

"Letter of Credit (L/C) is a letter from a bank allowing someone credit and promising to repay at a letter date." (A Ivanovic)

"Letter of Credit (L/C) is an instrument by which a bank substitutes its own credit for that of an individual, firm, or corporation to the end that domestic & foreign trade may be more safety." (The Dictionary of Banking)

"Letter of Credit (L/C) is a document issued by a bank on behalf of a customer authorizing payment to a supplier when the conditions specified in the document are met." (Dictionary of Business)

"An instrument or document issued on behalf of a buyer by a bank on another banker bank or banks or on itself." (M Rosenberg)

At last it is said that, Letter of Credit means-

a loan document or instrument where bank, importer & exporter concerns, are  issued by bank on behalf of importer to ensure payment to exporter on specified written condition.

Objectives / Importance /Advantage of Letter of Credit (L/C).

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Letter of Credit (L/C) is an important credit document used in foreign business or trade. Bank ensures the payment to exporter up to predetermined amount of money with foreign coins on behalf of importer. Without letter of Credit exporter isn't agree to sell his products, goods & services. The Objectives / Importance /Advantage of Letter of Credit are given below with detail :

1. Development of foreign trade :

By issuing letter of credit exporter sells product and importer becomes capable to purchase that commodities. As a result foreign trade is organized, expanded & developed.

2. Confirmation of payments :

Bank ensures the payment to exporter if importer becomes failure through letter of credit. As because exporter can sell his products without any hesitation.

3. Development of home trade :

The using of Letter of credit is practiced for domestic trade and commerce. As a result unknown traders can direct their trade and business & commerce are improved also.

4. Creating Relationship :

The relation among the domestic as well as foreign traders is created and build-up also by using letter of credit.

5. Risk Reduction :

The traders between the two countries are not acquaintance. So, their payment become risky. Bank lessens the risk introducing the traders of the two countries each other through letter of credit.

6. Settlement of transaction :

According to the condition of letter of credit if the importer don't pay the price of imported goods & services then bank settles the transaction by paying money in favour of importer.

7. Increasing Income / national income:

Letter of credit helps to increase the export of domestic. The income of seller, trades & industrialists is increased by export. As a result his capital & business is expanded.

8. Employment :

If bank issues letter of credit more then the county becomes capable to export more, the business & commerce is expanded as well as more employment opportunity is created.

9. Development of tourism industry :

Bank issues letter of credit to traveller. This is why, The tourists can make more journey and tourist industry is developed.

10. Market Creation :

In the continuity of issuing more letter of credit the foreign importers of various countries import more commodities and new markets are created.

11. Development of living standard :

Letter of credit helps to Increase the  exports of a county. As a result increasing per head income & national income bank improves the living standard of mass.

At last we can say that, foreign trades are impossible without letter of credit. The more used of letter of credit creates the balance of trade the country becomes self-sufficient.

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Banks loan or Banks Advances.

Classifications / Types of Banks loan or Banks Advances. 

Bank loan / advance is specific sum of money lent by a bank to a customers. Bank credit includes a cash loan and any other form of financial accommodation. Moreover an advance is a payment on account or before a contract is completed or legally due. Bank loan/ advance may be varied on the basis of nature, documents & period are given below :

A. Credit on the basis of Nature :

Bank loan may be following two categories on the basis of nature.

1. Credit from Banks Fund.

2. Documentary Credit.

1. Credit from Banks Fund :

The credit which is given from banks owns account with various accounts is called Credit from Banks Fund. Credit from Banks Fund can be three categories. such as-

i)  Loan.

ii) Cash credit.

iii) Overdraft.

i) Loan :

Loan is the sum being made available by transfer from loan account to the customers current account. It is made to a customer which a cheque account at a bank, in which the account is allowed to go into debit, usually up to a specified limit. The loan is sanctioned against mortgage and the total loan amount is given back to bank at a time with interest. The rate of interest of loan is relatively less than other.

ii) Cash Credit :

A cash credit is an arrangement by which the customer is allowed to borrow money through a current account up to a certain limit against mandatory mortgage. The loanee can withdraw up to the  sanctioned limit at a time or partially. The interest of this credit is quarterly payable and yearly adjustable wit interest. The loanee has to pay the interest on only the withdrawn amount have been user for how many days. The interest rate of this credit is high but less than overdraft.

iii) Overdraft : 

An overdraft occurs when a cheque is written on uncollected funds. It's usually a temporary arrangement and is granted to the customers having current account. At high interest rate this credit is given against personal mortgage that means the person who has intimate relation with bank and given back to bank as soon as on short call of bank.

2. Documentary Credit :

Issuing, transferring and certifying the valuable documents bank gives such credit. It's two categories. such as -

i)Commercial documentary credit.

ii)Non-commercial documentary credit.

i) Commercial documentary credit :

Bank disburses which loan to its clients by issuing commercial & business documents such as - bank draft, pay order, bank guarantee & credit card is called Commercial documentary credit.

Bank draft :

It's a bill of exchange payable on demand drawn by the banker on the head office at the request of a customer. Moreover it is a draft which is payable immediately upon sight or presentation to the drawee.

Pay Order :

It is a cheque drawn by a branch of the bank on itself. Pay to order is a negotiable instrument that is made payable to order can be negotiated only by endorsement and deliver.

Bank Guarantee :

It's one kind of debenture by which the certainty of paying the specified limit of loan amount is given from bank.

Credit Card :

Client can purchase goods and services from specified individual or organization, even can withdraw cash, moreover can perform national  & international trade  using which card provided by bank is called credit card.

ii) Non-commercial documentary credit:

Bank disburses which loan to its clients by issuing non-commercial & non-business documents such as - travellers cheque, circular note, circular letter of credit, debit & credit card is called non-commercial documentary credit.

Travellers Cheque :

Travellers Cheques are the cheques issued by the bank by which the holder required to sign at the time of encasement at foreign coins or money to foreign branch or agents of that issuing bank. Traveller has to take the government approval before collecting travellers cheque.

Travellers Letter of Credit :

Travellers Letter of Credit is a L/C which a bank issues travellers for the convenience of the persons who want to travel with in the country or abroad. It is two types. 

I) Direct Letter of Credit 

ii) Circular Letter of Credit.

Circular Note :

It is a non-commercial credit document  or a series of credit documents holding variety amount each issued and ordering by bank on its one or more than one foreign agent or branches to give particular amount of money to specified individual within a certain time period.

B. Credit Based on Objective :

Credit based on objective may be two categories.

1. Commercial loan.

2. Non-commercial loan.

1.Commercial loan :

Bank provides which loan for commercial sectors is called commercial loan. Such credit is given through loan, cash credit, overdraft or documents.

2. Non-commercial loan :

Bank provides which loan for non-commercial sectors is called non-commercial loan. Such credit is given for household development, accommodation facilities, or travelling sectors.

C. Credit Based on Period :

Credit on the basis of period may be differentiate by three categories.

1. Short-term loan.

2. Mid-term loan. &

3. Long-term loan.

1. Short- term loan :

Which lone is issued by bank for short while that means the duration of this loan may be from a few hours to maximum one years is called short- term loan. It is two types. 

I) Credit at short call.

 ii) Credit at short notice.

2. Mid- term loan :

Which lone is issued by bank against mortgage at higher rate of interest than short term loan for a mid while that means the duration of this loan may be from one year to maximum 5 years is called short- term loan.

3. Long -term loan :

Which lone is issued by bank for long time that means the duration of this loan may be for more than 5 years at the high interest rate against valuable mortgage convertible in cash due to house & industry establishment is called short- term loan.

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Considering factors / Principles of Granting Loan/Bank Loan/Advances.

Bank directs its own business with the money of other peoples. After meeting customers demand the remainders are given to the general people as loan. But if the loan money are not got back at appropriate time, bank becomes failure to pay the instant demand of depositors and its goodwill is lessened. So, to ensure the instant demand of money the banks are to consider following many facts or principles before giving loans to peoples :

1.Solvency :

Bank is to see whether the expected lonee is financially solvent or not. if he is solvent then bank may give him lone.

2. safety :

While contributing the fund, banks are to be alerts in light of the fact that bank's cash is depositors money. Unless the cash loaned out is safe, the banks can't pay depositors money back. Therefore, the banks are considering extreme truly the parts of security of the loaned out money .

3. Profitability: 

The main impetus of commercial  endeavour is to produce benefit. So, it is valid if there should arise an incident  of bank.

4. liquidity: 

Deposits  are the life blood of a bank. Investors are repayable on interest or after expiry of a certain period. Everyday  investors either store or withdraw money. To fulfill the demand for cash, all banks need to keep certain measure of trade in for spendable dough their custody.

5. Honesty of Client :

Banks are to think whether the loan given to the person is completely  honest or not. If not, then bank don't give him any lone. Because every honest man is always honest to all sides.

6. Utilization of loan amount :

While giving loan all banks have to keep sight on whether the person is taking loan will be properly utilized in any productive area with which the amount may be come back or for personal demand. If it's possible to use for personal or family demand, then bank won't disburse him any loan.

7. Purpose of using :

Bank don't give lone for any purpose. So, before disbursing loan bank is to know in which purpose loan is being taken by client.

8. National Interest :

Generally Bank should not disburse loan in known condition if the amount is used against national interest.

9. Nature of security :

Bank provides lone easily against security which is more valuable and easily convertible in cash.

10. Term of returning :

Commercial bank can give loan more if the loan come back in short while. This is why bank has to remember the duration of paying the loan while disbursing loan

.

11. Loan Specialization / Diversification  :

Selecting the specific area or sector of loan giving bank provides lone. If people wants to take loan on specified sector, bank give preference or priority to that people. Because the more loan sectors, the bank can provide more loans.

12. Volume of loan :

Bank has to consider the expected amount of loan or volume of loan. Because it is impossible for bank to disburse more amount than predetermined amount by the authority of bank or central bank.

13. Principles of Central Bank :

Following the principles, guidelines and directions of central bank,  the commercial bank has to give loan.

14. Principles of government :

Following the principles, guidelines and directions of loan providing system of government,  the commercial bank has to diverse loan.

At last it is said that, bank gives loan from the amount of clients. so bank has to disburse loan with goodwill for achieving profit thinking the total safety & security of finance.  

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Definition / Important / Objectives of Banks loan or Credit or Advances.

Definition of Banks Credit / Advances

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Bank lends which money, goodwill, and blessing or faith to its clients for gaining profit is called banks credit or advance. Collecting money from peoples, bank preserves a few part of  that money to its own for meeting daily current demand of client and the remainders are invested or given loans. Banks lend rather its glory, fame, goodwill & belief than only money to peoples through various documents & deeds.

Bank credit includes a cash loan and any other form of financial accommodation. ( F E Perry)

Bank loan and credit / advance is a specific sum of money lent by a bank to a customers. (Oxford Dictionary of Business)

An advance is a payment on account or before a a contract is completed or legally due. (C J Woeifel)

Importance / Significance / Objectives /Advantages of Bank Loan.

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In the modern competitive age there are more importance & significance of bank loan to increase the mobility of trade, commerce, economics & society. None can improve his luck or expend the business, commerce even social organization investing his own funds. Bank loan is mandatory to improve foreign business for keeping economic flow in balanced or economic certainty. The importance/significance/objectives/advantages of banks loan are given below with detail:

1. Money supply:

A great deal of money is needed in any types of financial activities. Though it is difficult to provide this money from own funds, bank ensures the preservation of money through loan.

2. Development of home trade:

Bank keeps a great role for the development of home trade by investing capital, ensuring financial payment and safety transformation of finance.

3. Expansion of foreign trade:

Bank expands and develops the foreign trade by providing and ensuring financial help to the importer & exporter.

4. Industrialization:

Banks is capable to keep a great role  to establish new industries and to expand those organization by giving  a great deal of money as loan.

5. Agricultural Development :

A huge amount of money is needed to direct, develop & expand agricultural activities. Banks can vigorously improve this sectors by providing loans to poor farmers in easy conditions.

6. Development of small Industry :

In the Development of small Industry banks provide huge amount  of lone.

7. Increasing production.

8. Increasing the purchasing power to the general peoples.

9. Development of communication system.

10. Assisting journey.

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Definition & Sources of Banks Fund

Definition of Banks Fund:

Banks Fund is the preservative accumulated amount of money those are collected by bank from various sources including internal & external sources.

Sources of Bank's Fund

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Banks fund is formed by owners equality, deposits or reserve fund, and loan capital. There are two types of sources of banks fund :

A. Owners equality.

B. Loan fund.

A. Owners equity  :

It is collected by bank from share selling and profits. The more share, the more owners equity of bank. The sources of owners equality are given below with detail :

1. Paid-up capital :

paid-up capital of bank are the capital collected from share selling. A bank must keep 10 millions money (with reserved fund) as  paid-up capital for being  scheduled to central bank. Because it's also owners capital of a bank. If it is more, then the easy direction by bank is possible.

2. Reserve Fund :

Without distributing all part of earned dividend  among share holders, bank creates a fund with a part of that dividend to protect all kinds of further hindrances. That fund is called reserve fund. There are various types of volitional reserves formed by bank beside mandatory reserve fund. Those volitional reserve are given below :

i) General Reserve :

According to the decision of  board of director such funds are formed by bank with the help of a few money collected from earned divided. There is no specific rate for general reserve. Board of director determines it depending on divided. Money maybe collected from such funds, if banks need any current capital.

ii) Statutory Reserve :

Commercial banks compulsorily collect which reserves at a particular rate determined by the central bank or government  is called statutory reserve. According to the rules of central bank, the commercial banks are to form this reserve at 20% rate of divided until equal to collected capital. Such reserve is considered as source of banks owners equity.

iii) Other Reserve :

Except general reserve or statutory reserve, banks form various reserve fund such as- depreciation reserve, divided equalization reserve, sunk reserve, non-claimed reserve, premium reserve etc. for various objectives.

3. Undistributed Profit :

After transferring & distributing the earned dividend into various reserve funds, the remaining amount in hand is called undistributed profits. This fund can be used as current capital.

4. Share Premium :

Share is sold in which price more than the actual share price is called share premium. Accumulating the premium amounts, bank creates share premium fund is used as source of fund.

5. Bonus Share :

Without giving any part of divided among the share holder in necessity of current capital, if bank gives share as bonus is called bonus share. such share is the source of banks owners equity.

B. Loan Fund :

The fund which is formed by bank receiving loan is called loan fund. There are two types of sources of loan fund :

1.Deposits Loan :

Bank receives deposit from peoples through savings, current & fixed account. A big part of those deposits are preserved to bank for long time. That deposits are used as fund.

2. Direct Loan :

Banks formed fund receiving loan directly from various sources such as - central bank , Other commercial banks, loan providing banks, stock exchange, selling various documents like deposit certificates, savings bond and other bonds, debentures etc.

At last it's said that banks collect fund from various sources. Creating various sources except the above discussed sources banks form its fund to create mobility or to adapt or exist to the current competitive market position.

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