While granting loans, they must be concerned about how these amounts will be repaid on time. Loans are essentially a game of the future & the future is uncertain! No one can predict what will happen tomorrow. That is why banks require collateral from borrowers before giving a loan. The purpose is that if the loan defaults for any reason, the bank can recover it by taking possession of the collateral. However, not every loan needs to have collateral. Banks can provide unsecured loans, but their proportion remains very small.
Banks are the backbone of the country’s economy; they collect deposits from depositors and provide loans to businesses, entrepreneurs, and consumers. This is the role of an intermediary! As a result, credit money continues to be created, currency circulates in the country, employment is generated, and the economic cycle remains active.....(To continue, open the magazine)