Question

Repayment of the loan depends on the borrower's

• A. willingness to pay
• B. ability to pay
• C. Both A & B
• D. None of these

Answer 1

Answer:

C. Both A & B

Security or Safety:

• A bank deals money of the public. A bank cannot invest its fund in risky businesses.
• To win confidence of the public is more important in banking business.
• As the bank lends the funds entrusted by the depositors, the first and foremost principle of lending is to ensure the safety of the lent funds.
• Security means that the borrower is in a position to repay the loan with interest as per the terms of the loan agreement.
• Repayment of the loan depends on the borrower's

1. 1. ability to pay and
   2. willingness to pay

• Willingness to pay depends on the honesty and character of the borrower.
• The banker usually relies on the security of tangible assets owned by the borrower to ensure the safety of his funds