Principles of banking management
Safety means that the borrower should be in a position to repay the loan and interest at regular durations of time without any fail.
Principle of Profitability The main objective of the commercial bank is to earn a profit.
What are the principles of banking
So, more savings, more investment, and more profit. In order to avoid such situations, the best alternative is to limit the likelihood of bad debts. Principles of Credit Management Credit management plays a vital role in the banking sector. They took deposit levels as given and worked from there. Thus, while making any sort of investments, banks should decide securities, shares and debentures of such governments, local bodies and industrial concerns which meets the principle of safety. The more there is of it, holding profits constant, the less each dollar of it earns. It should select the shares and debentures of various industries located in different parts of the country. Asset management. Unlike all other investments, bank investments are risk-prone.
A bank should prefer investing in those stocks and securities which hold a high degree of stability in their costs. The success of a bank depends on the services provided by the bank. Principle of Location Commercial banks must have to locate their branches in the commercial area where many customers are available.
Principle of Savings Commercial banks collect fund by creating savings facilities. So it should always invest funds in the shares of branded companies where the probability of decline in their rate is less.
This can only be achieved through good credit management practices.
So, bank investments in debentures and contracts are more stable when compared to the shares of industries. A bank is in possession to take over these produced assets if the borrower fails to repay the loan amount after some interval of time as decided A bank has its own selection criteria for choosing security.
That leaves us with capital adequacy management. The principle of publicity. Liability management. Customer chooses those banks that provide improved services. This can only be achieved through good credit management practices. For example, the terms and conditions, invoicing promptly and the controlling debts. Banks rarely used overnight loans 15 After: Expansion of overnight loans Development of new financial instruments The flexibility in liability management means: the bank need not to depend on checkable deposits as the primary source of funds liabilities. This show that there is a trade-off between safety and returns. Bankers must also be careful to diversify, to make loans to a variety of different types of borrowers, preferably in different geographic regions. Sound lending principles by banks also help the economy of a nation to prosper and also advertise expansion of banks in rural areas. A bank is in possession to take over these produced assets if the borrower fails to repay the loan amount after some interval of time as decided A bank has its own selection criteria for choosing security.
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