The banking industry is known to many as the most reliable institution for fetching loans for various personal and professional financial needs. A loan is temporary provision of money usually at interest which has to be paid in a designated amount of time. While the job oriented banking courses in India do provide all the important educational aspects of banking, they also give some special insights about the entire loan processing and approval process as this department handles quite a lot of arduous tasks which include the screening of the borrowers, the documents furnished and even the credentials with regard to timely payment. Let’s discuss them all in detail:
- Credit history- As a professional with completed banking training courses, it becomes extremely important to check the credit history as it is indicative of your future repayment behavior such as the punctuality in repaying the loans. The longer the delay, the lower the score will be. Also, credit card score should also be maintained with no default in repayment. Generally, a credit score between 700 and 800 is positive whereas the credit score of less than 300 will increase the likelihood of your application being rejected.
- Age- The age of a loan applicant is directly related to his loan getting approved. Generally, the applicant in the age group of 20’s and 30’s with a job or business of their own stand a higher chance for loan approval since they are financially stable and also have the potential to climb up the corporate ladder.
- Income- The income is very much a reflection of your repayment capacity. Banks assess the income capacity in the backdrop of existing debt obligations, dependents, source, and duration. In this context, one of the many things the bank checks is sufficient surplus after EMI payments. If this is found wanting, the bank infers that you’re spread far too thin and likely to default. However, if the ratio is five times and above, the bank will consider you financially healthy. To strengthen your eligibility, they can also show additional sources of income, such as your spouse’s salary
- Repayment: The banking professionals must check whether the eligible person is choosing a shorter repayment period as it stands a better chance of getting the loan approved. Several banks favor applications for a repayment period of up to five years. As the repayment period increases in five-year slabs – 10, 15, 20, and 25 years – the score reduces. So, keeping it short is the mantra in seeking that approval from a bank for a loan.
- Margin money- This is one of the more crucial factor that the banking professionals finishing the short term banking courses in Delhi need to be absolutely sure about. Generally, banks are willing to fund up to 80% of the cost of purpose of the loan and expect the borrower to arrange for the balance. Moreover, the banking professionals also need to see if the borrower has a good existing relationship with the particular branch of the bank.
If you are one of the aspirants willing to make big in the banking sector after finishing the job oriented banking courses, you must keep yourself informed about a few fundamentals in banking. Interest rates and price stability are the two such components of banking which must be studied to detail. As we all know, it is the monetary policy aimed at the supply of money in its economic system by its control over interest rates which maintain price stability and perform to achieve high economic growth.
In India, such apex bank is the Reserve Bank of India (RBI). It is responsible to maintain the price stability in India. Besides, there are many other objectives of the monetary policy of India, which are governed and performed by the RBI. Out of them, there are various types of rates which are variable as per the economic scenario of the country and are decided by the RBI time to time.
Repo rate is the rate at which banks borrow money from the RBI to meet their deficiencies. Banks do pledge their holdings of government bonds as collateral and in against of it, banks borrow from the Reserve Bank of India. When the RBI decides to reduce the borrowing by the banks it increases the repo rate. This is done when the economy is overheated and needs to be cooled. Similarly, when the RBI wants to make it cheaper for banks to borrow the money, it reduces the repo rate. This is done when the economy is not doing too well. To put it simply, the reduction in Repo rate enables the commercial banks get funds at cheaper rates whereas the increase in repo rate discourages the commercial banks to get money due to the increase in rates making it expensive.
Reverse repo rate
Reverse Repo rate is RBI’s borrowing rate from the commercial banks. The RBI uses this tool when there are more than enough money floating in the banking system. This rate encourages the banks to give money back to RBI and earn some interest on it. This happens when banks don’t have enough consumers/ companies to lend the money to and money is lying idle with the banks. When the reverse repo rate is increased, RBI borrows money from the banks and offers them at a lucrative rate of interest. Hence, banks prefer to keep their money with the RBI which is absolutely risk-free in comparison to lending anywhere else.
Bank rate is the rate of interest charged by the RBI against the funds lent to the banking system. This banking system incorporates commercial and co-operative banks, Industrial Development Bank of India, etc. If there is a hike in bank rate, the cost of borrowing of the commercial bank’s increases which results in the reduction in credit volume to the banks and hence declines the supply of money. When RBI increases the bank rate, it means it’s a symbol of tightening the monetary policy
A change from low to high Bank rate means the economy needs cooling down. In other words, the RBI would like to reduce inflation. A change from high to low Bank rate means the economy needs a boost. In other words, the RBI would like to increase inflation.