This is the survival unit of the bank because until and unless the success of this department is attained, the survival is a question to every bank. If this section does not properly work the bank itself may become bankrupt. This is important because this is the earning unit of the bank. Banks are accepting deposits from the depositors in condition of providing interest to them as well as safe keeping their interest. Now the question may gradually arise how the bank will provide interest to the clients and the simple answer is – Loans & Advance.
Credit is continuous process. Recovery of one credit gives rise to another credit. In this process of revolving of funds, bank earns income in the form of interest. A bank can invest its fund in many ways. Bank makes loans and advances to traders, businessmen, and industrialists. Moreover nature of credit may differ in terms of security requirement, disbursement provision, terms and conditions etc. The bankers have to keep in mind that lending is for the best interest of the community and lending should be directed to productive sectors only.
We often use loans and advances as an alternative to one another. But academically this concept is incorrect. Academically Advances is the combination such items where loans is a part only. For this credit section of the banks is known as advance section. Academically Advance is the combined form of the following items
Functions of Advance Department:
- Ensuring that funds are disbursed only after compliance with terms and conditions or required documents received.
- Make sure that the bank has always valid and current loan documentation.
- Ensuring that the collateral security is adequate at times to support the loans.
- Keeping the loan documentation under safe custody.
- Ensuring that the bank receives sufficient valid insurance cover whenever required from a recognized insurance company.
- Monitoring the receipt of periodical receivable.
- Debiting the client for all charges, interest etc.
- Maintaining the central liability records for all extensions of credit and balancing the totals with General Ledger.
- To earn interest from the borrowers and give the depositors interest.
- To accelerate economic development by providing different industrial as well as agricultural advances.
- To create employment by providing industrial loans.
- To pay the employees as well as meeting the interest groups.
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