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- Individuals and companies requires funds for various reasons. Hence, credit is extended to them by banks in different forms. For example, auto-finance, housing loans, educational loans etc., are provided to individuals and working capital loans, machinery loans etc., are provided to business firms.
- Credit market plays a significant role in the Indian Financial system. Intermediates like banks, financial institution and non-bank finance companies provide credit for the varying requirements of the consumer and corporate sectors of the economy. This credit extension will mostly in the form of cash.
- Lending rate is one of the important criteria while extending loans. Intermediaries base their lending rate decision on three important criteria - their cost of fund, transaction cost and required spread.