Lending of funds better known as bank loans to the constituents, mainly traders, business and industrial enterprises, constitutes the main business of a banking company. The major portion of a bank’s funds is employed by way of loans and advances, which is the most profitable employment of its funds. The major part of bank’s income is earned from interest and discount on the funds so lent. The business of lending, nevertheless, is not without certain inherent risks.
Security of tangible assets like goods and commodities, land and buildings the latter also called as pret immobilier is made in secured kind of loans. The market value of the security must not be lesser than the amount of loan at any time, till the loan is repaid. A charge on any such assets offered as security must be created in favor of the banker. The borrowing capacity of a person is judged on the basis of the tangible assets in the possession of the borrower.
Unsecured advances are granted with caution and within certain limits only because in case of default by the borrower, the banker stands at par with other unsecured creditors. Simulation pret encourages mobilization of resources in the country.