Loan Structuring

To develop such harmonized terms of lending contract which will meet the interests and needs of the lender and the borrower. Loan structuring plan focuses on the followings:

Amount of loan /finance. Period of finance. Rate of mark-up (Loan pricing). Repayments (installments).

Loan support:
Collaterals.

Guarantees.
Completion

of Documentation formalities before disbursement of loan Registration of charge.

Type of Finances/Credits:
Fund Based. Non-Fund Based.

Trade Finances include:

Export finance. Finance against foreign bills. Foreign bill purchased. Packing credits. SBPs export finance scheme

Import Finances.
Import letter of credit.

Payment against Documents. PAD & also

Forced PAD) Finance against Trust Receipt (FTR) Finance against Imported Merchandise

(FIM).

Sectoral finances Include:

Industrial Finance. Agricultural Finance. Finance for Construction/Housing. Consumer Finance

Syndicated finance/Consortium finance

Number of banks participate in this type of financing. Lead Bank Lead Manager. Participating Banks. Borrowers/Customers comprise of Government/Public sector organizations or corporate entities

 Fees: etc.

Comuitment fee, Management fee

Loan structuring, pricing, Packaging, Documentation, Disbursement, Monitoring & follow-up process as usual but with required technical skills, professional expertise.

Collaterals:
Collaterals

serve as safety valve and provide the creditor a recourse to collateral (security) in case of default by borrower (customer).
are not treated /relied upon as primary source of repayment of credit (loan).

Collaterals

Attributes of a good collateral:

1)Readily Encashable /Realizable.

Readily encashable/realizable in case the borrower defaults without legal complications either by bank itself or through

speedy legal process.

2) Adequate in Value:

Value of security must be adequate to enable the bank to secure the outstanding amount of principal and mark-up (interest). Proper

margins to be retained while accepting a security

3) Clear Title:

Title of security offered by the borrower (mortgagor etc. ) should be clear and unambiguous. No liability to third party

4) Safety:

The asset offered as security should be safe and durable. Perishable items, explosives etc. are not treated
safe as securities.

Forms of Securities:
1) 2) 3) 4) 5) 6) Mortgage. Pledge. Hypothecation. Lien. Guarantee. Listed Stocks (shares).

7) Government securities.

Mortgage
Mortgage Defined:

Transfer of Property Act, 1881 defines mortgage as: The transfer of an interest in specific immoveable Property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or performance of an engagement which may give rise to a pecuniary liability.

Rights of Mortgagee (Bank):

1) To sell the mortgaged property in case of default by mortgagor. 2) Right to fore-closure.

3) Right to file suit.

Types of Mortgage: a) Registered or Legal Mortgage.

This is created through a formal document called mortgage deed. Mortgage deed is registered with the Registrar of titles. It is comparatively expensive involves stamp duty and registration fee.

Types of Mortgage:
b) Equitable Mortgage:
This is created by deposit of title deed by the mortgagor. Memorandum regarding deposit of title deed is also signed by respective parties. Clear title of the deed must be ascertained by the bank/mortgagee

Pledge:
According to section 172 of the Contract Act:

Pledge is the bailment of goods as security for payment of a debt or performance of a promise.

Bailment-- Defined:
According to Section 148 of a Contract Act 1872:

A bailment is the delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished be returned or otherwise disposed of according to the directions of the person delivering them.

Bailment
The pledgee (Bank) has actual control of pledged stocks/Goods. Pledgee can sell pledged stocks by giving reasonable notice to the borrower. Before disposal, pledgee should publish the notice through news papers etc.

Hypothecation:
Hypothecation is a legal transaction, whereby goods may be made available as security for a debt without transferring possession to the lender. Rights of Lender (Bank). To inspect Godowns. To demand stock reports from the borrower. To get the stocks insured.

Lien:
Lien is a charge given by the customer (borrower) to a bank over some securities. Letter of lien must be obtained from the borrower

(customer). It can be over stocks (shares), fixed deposits, bank accounts etc. In case the security offered is issued by the third party the notice may be issued to the respective party regarding the same. lien to be noted on the said property/security. According to companies ordinance 1984 every charge created by a limited company must be registered with the Registrar of Companies.

Guarantee:
Guarantee is a contract to perform the promise or discharge the liability of a third person is case of his default. Rights of Creditor: To recover the amount from the guarantor in case the principal debtor defaults. To sue the guarantor. A banker can sue principal debtor and the guarantor at the same time,

INDEMNITY
A contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor him self or by conduct of any other person. ILLUSTRATION: Issuing a duplicate demand draft on production of indemnity bond.

INDEMNITY
Parties in a contract of Indemnity Indemnity holder Indemnifier Rights of indemnity holder: Sec 125 right to recover the damages in lieu of suit filed against him To recover any expanses with regard to any suit filed or contested by him. In case of compromise , the indemnified can recover the expanses which he has incurred in lieu of this compromise.

INDEMNITY

Rights of indemnifier:

Indemnifier is protected under general principal of law which states that where one person agrees to indemnify the other, he will on performing under the indemnity shall be entitled to all the ways and means by which the person indemnified might have protected himself for the loss.