Banks have to generate income from different lending services in order to provide interest to the depositors and make profit. Banks earn most of their income from interests on different types of lending services which are also referred to as Fund based income services due to involvement of funds here.
Banks lend money to the borrowers for short, medium or long term either against some security or without any security and the borrower promised to repay the amount in future along with the interest amount measured based on pre-decided interest rate.
The lending to the borrower is also referred to as “Loan” which is nothing but a contractual agreement between the borrower and the bank which contains all the terms and conditions like loan amount, tenure, rate of interest, repayment schedule etc.
The fund based lending can be done through Lines of Credit, Terms loans, Trade Finance, Export Import Finance, Revolving loans, club loans, Leasing etc.