Đang tải... (xem toàn văn)
After studying this chapter you will be able to understand: Evaluation of Loan proposals Which variables should be consider? Negotiable instrument, what are the two features of negotiable instruments?
Revise Lecture 22 • Evaluation of Loan proposals Which variables should be consider? Loans and Advances Evaluation of Loan proposals • • While evaluating the proposal, bank should assess not only the ability of the client to pay back the loan but also his willingness to repay They need to consider the following variables while evaluating a loan proposals; Loans and Advances Evaluation of Loan proposals Industry level credit analysis: • It needs to be performed to study the prospects of the industry and it most importantly includes a study of the Industry cycle Threat from substitutes Shifts in consumer demands Loans and Advances Evaluation of Loan proposals Operational Efficiency: • The company level credit rating is conducted to assess the operational efficiency of the client company The critical aspects that are to be evaluated in this process fall into the following categories; Loans and Advances Evaluation of Loan proposals Financial Efficiency: • Repayment of the loan by the clients depends greatly on their financial soundness Hence financial analysis becomes an imperative part of credit risk analyst It includes an analyses of; Financial leverage Cost of capital Loans and Advances Evaluation of Loan proposals Management Evaluation: • • The management evaluation throws light on the willingness of the client to repay It includes a study on the performance of the promoter, top management and also the performance of group companies under the same management • Negotiable Instrument Negotiable Instrument • • The term ‘negotiable instrument’ consists of two parts, viz, ‘negotiable’ and ‘instrument’ The word ‘negotiable’ means ‘transferable by delivery’ and the word ‘instrument’ means ‘written documents by which a right is created in favour of some person’ Negotiable Instrument • • It means an instrument possessing the quality of negotiability is entitled to be called a negotiable instrument In other words, negotiable instruments are documents meant for making payments, the ownership of which can be transferred from one person to another many times before the final payment is made Bill of Exchange Parties to a Bill of Exchange • • In case the bill is transferred in favour of a creditor of the drawer, the creditor will become the payee Normally the drawer and the payee are the same person Similarly, the drawee and the acceptor are normally the same person Bill of Exchange • CHEQUES Cheques • • A cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specific demand account held in the maker /depositor’s name with that institution Actually a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified Cheques • • The cheque had its orgigins in the ancient banking system in which bankers would issue orders at the request of their customers to pay money to identified payees Such an order was referred to as a bill of exchange Cheques • The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency to purchase goods and services Cheques • Cheques generally contain; Place of issue Cheque number Date of issue Payee Amount of currency Cheques Signature of the drawer Routing / account number Fractional routing number A cheque is generally valid indefinitely or for six months after the date of issue unless otherwise indicated, this varies depending on where the cheque is drawn Cheques • Features of a Cheque Cheques Features of a Cheque • Some important features of a cheque are given below; A cheque must be in writing and duly signed by the drawer It contains an unconditional order It is issued on a specified banker only Cheques Features of a Cheque The amount specified is to be always certain and must be clearly mentioned both in figures and words The payee is always certain It is always payable on demand 7.The cheque must bear a date, otherwise it is invalid and shall not be honoured by the bank Cheques Features of a Cheque • • The parties to regular cheques include a maker or drawer, the depositor writing a cheque, a drawee, the financial institution where the cheque can be presented for payment, and a payee, the entity to whom the maker issues the cheque The drawer drafts or draw a cheque, which is also called cutting cheque, especially in the United States Cheques Features of a Cheque • Ultimately, there is also at least one endorsee which would typically be the financial institution servicing the payee’s account • Types of Cheques Types of cheques • • A cheque used to pay wages due is referref to as a payroll cheque A traveller’s cheque is designed to allow the person signing it to make an unconditional payment to someone else as a result of paying the account holder for that privilege These cheques can usually Features of a Cheque • • A cheque issued by a bank on its own account for a customer for payment to a third party is called a Cashier’s cheque A Treasure’s cheque, a Bank cheque, or a Bank draft A cheque issued by a bank, but drawn on an account with another bank, is a teller’s cheque In addition banks often sell money orders ... clearly mentioned both in figures and words The payee is always certain It is always payable on demand 7.The cheque must bear a date, otherwise it is invalid and shall not be honoured by the bank... importantly includes a study of the Industry cycle Threat from substitutes Shifts in consumer demands Loans and Advances Evaluation of Loan proposals Operational Efficiency: • The company level credit... ‘negotiable instrument’ consists of two parts, viz, ‘negotiable’ and ‘instrument’ The word ‘negotiable’ means ‘transferable by delivery’ and the word ‘instrument’ means ‘written documents by which