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