Answer: (a) Small farmers normally have no collateral to pledge against loans. Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid. That is why banks have no interest to lend to small farmers.
In this regard, can a bank deny you a loan?
Banks often deny loan applicants due to an applicant’s poor or even slightly-below-average credit score. In some cases, banks simply have credit-score thresholds in place and the failure to meet these thresholds can result in immediate denial.
Also to know is, what are the major reasons that banks sell loans?
Why loans are sold
“Most lenders sell loans due to liquidity reasons, meaning they don’t want the loans in their balance sheet,” says Cristina Zorrilla, assistant vice president of mortgage pricing and investor relations with Navy Federal Credit Union. “They sell loans so they can lend to more borrowers.”
Which bank gives loan to farmers?
Providers of Agricultural Loan
|Name of the Lender||Major Types of Agricultural Loans Offered|
|Axis Bank||Kisan Power Kisan Matsya Kisan Mitra AGPRO Power|
|National Bank or Agriculture and Rural Development (NABARD)||Agriclinic and Agribusiness Centres Scheme National Livestock Mission New Agricultural Marketing Infrastructure|
Compare Best Agriculture Loan Interest Rates in India
|Name of the Bank||Interest Rate|
|ICICI Bank (Agri Term Loan)||10.00% – 15.33% p.a.|
|Central Bank of India (Cent Kisan Tatkal Scheme)||8.70% p.a. onwards|
|IndusInd Bank (Crop Loan)||10.15% – 14.75% p.a.|
|HDFC Bank (Retail Agri Loans)||9.10% – 20.00% p.a.|
NABARD provides Long Term and Medium Term Refinance to banks for providing adequate credit to farmers and rural artisans etc. for their investment activities. It is intended to create income-generating assets in the following sectors: Agriculture and allied activities.
Detailed Solution. The correct answer is NABARD.
Most small farmers have to borrow money to arrange for the capital. They borrow from large farmers or the village moneylenders or the traders who supply various inputs for cultivation. The rate of interest on such loans is very high.
Answer : Collateral is a guarantee to the bank so that if the borrower fails to repay the loan, the bank can sell the collateral and obtain the amount. Explanation: Collateral is a reassurance to the banks because, without collateral, the bank has no way to get back the money in case of failure of repayment.
Banks give loan on collateral which ensures or it acts as a guarantee that their loan will be repaid. Small Scale Industries do not have such valuable asset which they can give as collateral so banks hesitate to give loans without collateral.
With fewer community banks, there is less opportunity for business owners to find a loan at a traditional banking institution. Less profit on smaller loans. More often than not, small business owners are looking for smaller loan amounts. … Therefore, they can make way more money focusing on larger loans.
Many startups are rejected for a bank loan because they have a very weak loan application. … In addition to that, banks also require personal credit reports, tax returns and bank statements. Other documents that make a loan application stronger are state licenses, contracts, leases and permits.
The lender advances the proceeds of the loan, after which the borrower must repay the amount including any additional charges such as interest. … The interest and fees from loans are a primary source of revenue for many banks, as well as some retailers through the use of credit facilities and credit cards.
According to the above portrayal, the lending capacity of a bank is limited by the magnitude of their customers’ deposits. In order to lend out more, a bank must secure new deposits by attracting more customers. Without deposits, there would be no loans, or in other words, deposits create loans.