Question

In banking, 'Safety' is treated as a cardinal principle of lending. Which of the following statement/s best explains it ?

1. It is borrower's capacity to pay.
2. It is borrower's willingness to pay.
3. It is borrower's capacity to income generation.
4. It is borrower's not using loan for consumption purpose.

• A. ii only
• B. ii, iii
• C. i, ii, iii
• D. i, iii

Answer 1

Answer:

C. i, ii, iii

Cardinal principles of bank lending:

There are 3 cardinal principles of bank lending that have been followed by the commercial banks since long. These are the principles of :

1. safety

2. liquidity and

3. profitability

Safety:

• Safety means that the borrower should be able to repay the loan and interest in time at regular intervals without default.

• The repayment of the loan depends upon the nature of security, the character of the borrower, his capacity to repay and his financial standing