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The proceeds of most bank loans are not in the form of currency. Banks typically make loans by accepting promissory notes in exchange for credits they make to the borrowers' deposit accounts. [14] Deposits created in this way are sometimes called derivative deposits and are part of the process of creation of money by commercial banks. [15]
A 1926 promissory note from the Imperial Bank of India, Rangoon, Burma for 20,000 rupees plus interest. A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), [1] subject to any ...
Section 26 of Act describes the legal tender character of Indian bank notes. Section 28 allows the RBI to form rules regarding the exchange of damaged and imperfect notes. [2] Section 31 states that in India, only the RBI or the central government can issue and accept promissory notes that are payable on demand.
According to section 4 of India's Negotiable Instruments Act, 1881, "a Promissory Note is a writing (not being a bank note or currency note), containing an unconditional undertaking, signed by the maker to pay a certain sum of money only to or to the order of a certain person or the bearer of the instrument". [14]
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Often, banks were willing to buy time drafts from the party holding the acceptance, provided the issuer was credit worthy. [8] If the party holding the acceptance sold the note before maturity, a discount value called the Banker's Discount was used to reduce the face value of the amount to be handed over to the claimant.
The money multiplier theory presents the process of creating commercial bank money as a multiple (greater than 1) of the amount of base money created by the country's central bank, the multiple itself being a function of the legal regulation of banks imposed by financial regulators (e.g., potential reserve requirements) beside the business ...
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