Loan

Loan is the sum lent to other for certain time period with the agreement to charge interest on principal. The interest is charged certain percentage on the principal. When money belonging to one is advanced to another to be used for certain time period it is called loan. The basic objective of loan advancement is to earn interest as the reward for lending the sum for specific period.

 Commercial banks are organized institutes providing loans for the needed. The loan advancement is the main function of commercial banks .similarly interest on loan has become their main source of income. Bank do deposit accepting and lending business. Lending is a risky business. Loans are provided to earn interest. However sometimes it may be difficult even for the repayment of principal. In the situation there should be proper loan management in banks. Indeed making loan is the principal function of banks to fund consumption and investment spending by business individuals and government office. The fact how well a bank performs its lending function has a great deal to do with the economic health of the country. Bank loans support the growth of new businesses and jobs and promote economic vitality. Loan advancements account for more than half of bank’s total assets and about two thirds of their revenues. More risk in banking tends to be concentrated in the loan portfolio. When a bank gets into serious financial troubles its problems usually spring from loans. Generally loan problems emerge from the following reasons:

1.       Loans have become uncollectible due to mismanagement

2.       Illegal manipulation of loans

3.       Misguided lending policies

4.        Unexpected economic  downturn