Bank Loan / Finance / Credit / Advance
Lending money is one of the two major activities of any Bank. Banks accept deposit from public for safe-keeping and pay interest to them. They then lend this money to earn interest on this money.
A bank can lend out only a certain proportion of its deposits, since some part of deposits have to be statutorily maintained as Cash Reserve Ratio (CRR) – deposits with Reserve Bank of India and an additional part has to be used for making investment in prescribed securities (Statutory Liquidity Ratio or SLR requirement).
Banks have the option of having more cash reserves than CRR requirement and invest more in SLR securities than they are required to. Further, banks also have the option to invest in non-SLR securities.
We shall study about this article further, in detail, in our next post.