3980259 14 Loan Structuring

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Loan StructuringTo 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).


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Loan support:

Collaterals.

Guarantees.

Completion of Documentationformalities before disbursement of

loan

Registration of charge.


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Type of Finances/Credits:

Fund Based.

Non-Fund Based.


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Trade Finances include:

Export finance.

Finance against foreign bills.

Foreign bill purchased.Packing credits.

SBPs export finance scheme


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Import Finances.

Import letter of credit.

Payment against Documents. PAD & also

Forced PAD)

Finance against Trust Receipt (FTR)

Finance against Imported Merchandise

(FIM).


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Sectoral finances Include:

Industrial Finance.

Agricultural Finance.

Finance for Construction/Housing.

Consumer Finance


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Syndicated finance/Consortium

finance

Number of banks participate in this type of

financing.

Lead BankLead Manager.

Participating Banks.

Borrowers/Customers comprise of

Government/Public sector organizations orcorporate entities


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Fees: Comuitment fee, Management fee

etc.

Loan structuring, pricing, Packaging,

Documentation, Disbursement,

Monitoring & follow-up process as usual but

with required technical skills, professional

expertise.


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Collaterals:

Collaterals serve as safety valve andprovide the creditor a recourse to

collateral (security) in case of default byborrower (customer).

Collaterals are not treated /relied upon asprimary source of repayment of credit(loan).


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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.


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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 asecurity


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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.


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Forms of Securities:

1) Mortgage.

2) Pledge.

3) Hypothecation.4) Lien.

5) Guarantee.

6) Listed Stocks (shares).7) Government securities.


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Mortgage

Mortgage Defined: Transfer of Property Act, 1881 defines mortgage as:

Thetransfer 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.


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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.


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Types of Mortgage:

a)Registered or Legal Mortgage. This is created through a formal

document called mortgage deed.

Mortgage deed is registeredwith the Registrar of titles.

It is comparatively expensiveinvolves stamp duty andregistration fee.


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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 bythe bank/mortgagee


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Pledge:

According to section 172 of the Contract Act:

Pledge is the bailment of goods as securityfor payment of a debt or performance of a

promise.


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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 isaccomplished be returned or otherwise

disposed of according to the directions of

the person delivering them.


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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.


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Hypothecation:

Hypothecation is a legal transaction,

whereby goods may be made available as

security for a debt without transferring possession

to thelender.

Rights of Lender (Bank).

To inspect Godowns.

To demand stock reports from the borrower.

To get the stocks insured.


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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 respectiveparty 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 beregistered with the Registrar of Companies.


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Guarantee:

Guarantee is a contract to perform thepromise or discharge the liability of a thirdperson 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,


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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.


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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 thiscompromise.

INDEMNITY


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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.

INDEMNITY

3980259 14 Loan Structuring

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