Loans And Securities: Muhammad Kamran Bt-04-20 Burair Ali Bt-04-35

Loans And Securities

Muhammad Kamran BT-04-20 Burair Ali BT-04-35

Objectives • Forms Of Lending • Classification of Securities • Legal Forms of Securities

Forms of Loans • • • •

Cash finance Overdraft Loans Purchase and discount of bills

Cash finance • In cash finance, a borrower is allowed to borrow money from the banker up to certain limit, either at once or as and when required • Borrower pay markup or service charges only on amount he actually utilizes. • banker may provide for suitable clause in cash finance agreement.

Overdraft • When borrower require temporary accommodation, his bank allows withdrawals on his account in access of balance. • Secured overdraft Vs Clean overdraft • Service charges only on balance outstanding • Cash finance Vs overdraft

Loans • Borrows from banker a fixed amount repayable either in periodic installment or in lump sum at fixed future time called loan. • Borrower has to pay markup on entire amount. • Bankers feels satisfied in lending money in loan

Loans (cont….) Loan may be • Bridge Loan • Participation Loan

Purchase and discount of bills • Bank purchase bill of exchange at a suitable margin • Bill purchased facility does not make banker owner of bill but it as security • Usance bills are taken over by bank and paid at discount to parties before the date of meturity

REASONS FOR TAKING SECURITY • So the lender can realise on the security in the event of a default more quickly and efficiently and entitles the institution a recourse and minimises any potential losses. • So that the lender would be a secured creditor in the event of bankruptcy or liquidation.

Classification of securities • • • • • •

Prime Securities Personal and Intangible Securities Tangible Securities Collateral Securities Moveable Securities Immoveable Securities

Legal Forms of Securities • • • • •

Banker’s Lien Hypothecation Pledge Charge Indemnity

Banker’s Lien • Right to retain the property • A lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary

Condition for lien • (1) the property must come into the hands of the banker in his capacity as a banker in the ordinary course of business ; (2) there should be no entrustment for a special purpose inconsistent with the lien (3) the possession of the property must be lawfully obtained in his capacity as a banker; and (4)There should be no agreement inconsistent with the lien.

Property Subjected to lien • Any good bailed to them • Bonds and coupons • Insurance policy

When Is Lien Not Permissible • Where the valuables are received for safe -custody • When the deposit with the banker is for a specific purpose, if the banker has implied or express notice of such purpose. • Where the account is in respect of a trust. • Safe deposit receipts

Return of Securities • Repaid outstanding amount

Lien-----An applied pledge • Banker’s lien has been define as An Implied pledge • Banker can sell the securities on default • Banker can sell the securities after demand for repayment has not been responded to

Hypothecation • A legal transaction whereby goods may be made available as security for debt without transferring either the property or possession to lender • Security is granted by mean of a letter of Hypothecation

Banker’s Risk Hypothecation is risky because • Goods are in actual and constructive possession of borrower • Absence of title to the property

Pledge • pledge (also pawn) is a bailment of goods or personal property as a security for payment of some debt or engagement. • The dlivery of possession may be actual or constructive. • The person dilivering goods is called pledger or pawner and person to whom goods are delivered called pledgee or pawnee

Pledge (cont…) • In a pledge owneship remain with ledger, but the pledgee has exclusive possession of property until the advance is repaid in full • If the pledger make default, pledgee may retain property pledged as collateral or may sell it after reasonable notice • Pledgee can recover the extraordinary expenses in connection with the preservation of goods pledged

Charge • A right of payment out of certain property • Where immoveable property of one person is by act of law, made security for payment of money to another

Charge (cont….) • Registration of Charge • Enforcement of Charge • Fixed Vs Floating Charge

Indemnity • A contract by which one party promises to save the other from loss caused to him by conduct of promisor himself, or by conduct of any other person. • indemnity is protection from loss and damage claims