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?
Trang 2- Evaluation of Loan proposals
Trang 3Loans 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
Trang 4Loans 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 1 Industry cycle
» Threat from substitutes
3 Shifts in consumer demands
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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;
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Evaluation of Loan proposals Financial Efficiency:
1
2
- 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;
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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
Trang 8‘ Negotiable
Trang 9Negotiable Instrument
* The term ‘negotiable instrument’ consists of two parts, viz, ‘negotiable’ and
‘Instrument’
- The word ‘negotiable’ means ‘transferable by delivery’ and the word ‘instrument’
Trang 10Negotiable 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
Trang 12Negotiable Instrument
* Anegotiable instrument must possess two features;
Trang 13Negotiable Instrument
2 The transferee taking the Instrument in
Trang 14- What the essential characteristics ofa
Trang 15Negotiable Instrument
- The essential characteristics of a
negotiable instruments are; 1 Payable to order or bearer:
- It must be payable either to order or bearer
2 Freely transferable:
- An instrument payable to order Is
Trang 16Negotiable Instrument
3 Presumption as to holder:
- Every holder of negotiable instrument Is oresumed to be holder in due course
4 Title of holder in due course:
* A holder in due course i.e the person who becomes the possessor of negotiable
Instrument before maturity, for valuable consideration and in good faith, gets the Instrument free from all defects in the title
Trang 17Negotiable Instrument
5 Presumption as to considerations:
- Every negotiable instrument is presumed to have been made, drawn, accepted,
Trang 18* What are the main negotiable
Trang 20Negotiable Instrument
Promissory notes
* According to the definition;
- Adocument of promise In writing by a person to pay a certain sum of money unconditionally to a certain person or
according to his order is called promissory
Trang 21Negotiable Instrument
- The characteristic features of a promissory note are;
Apromissory note must be In writing, duly signed by its maker and properly Stamped as per the Pakistan stamp Act 2, It must contain an undertaking or promise
to pay
Trang 22Negotiable Instrument
4 It must contain a promise to pay money only
5 The parties to a promissory note, I.e the maker and the payee, must be certain
6 It may be payable on demand or after a certain date
7 The sum payable mentioned must be
Trang 23Negotiable Instrument
‘ A promissory note does not require any acceptance because the maker of the
Trang 24Negotiable Instrument
- In course of transfer of a promissory note by payee and others, the parties involved may be the;
- The endorser: the person who endorses the note in favour of another person
Trang 27Bill of Exchange
- According to the negotiable instrument
Act, 1881,a bill of exchange Is defined as an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to pay a certain Sum of money only to, or to the order of, a certain person or to the bearer of the
Trang 28Bill of Exchange
- The following features of a bill of exchange emerge out on the basis of this definition;
A bill of exchange must be In writing and not oral
It is an order to make payment The order to make payment Is
unconditional
Trang 29Bill of Exchange
5 The payment to be made must be certain 6 The date on which payment is made must also be certain
7 The bill of exchange must be payable toa certain person
Trang 30Bill of Exchange
Trang 31Bill of Exchange
‘ According to the Act, a bill of exchange Is generally drawn by the creditor on his
debtor
- It has to be accepted by the debtor or
someone else on his behalf It is called a DRAFT before its acceptance
- Therefore, one of the underlying features of a bill of exchange Is that it has to be
Trang 32Bill of Exchange
Parties to a Bill of
Trang 33Bill of Exchange
Parties to a Bill of Exchange
- There are three parties to a bill of exchange;
The drawer ts the maker of the Dill of
exchange
2 The drawee Is the person upon whom the bill of exchange Is drawn
Trang 34Bill of Exchange
Parties to a Bill of Exchange
‘ The drawer of the bill himself will be the payee If he keeps the bill with him till the date of its payment
- The payee may change In the following Situations;
- In case the drawer has got the bill discounted, the person who has
Trang 35Bill 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
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Trang 37Cheques
- Acheque 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
Trang 38Cheques
- 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 Dill of
Trang 39Cheques
- The use of bills of exchange facilitated trade by eliminating the need for
merchants to carry large quantities of
Trang 41Cheques
6 Signature of the drawer
7 Routing / account number 8 Fractional routing number
A cheque Is generally valid indefinitely or for six months after the date of issue unless
Trang 42Cheques
‘Features ofa
Trang 43Cheques
Features of a Cheque
* Some important features of a cheque are given below;
1 ACheque must be In writing and duly Signed by the drawer
2 It contains an unconditional order
Trang 44Cheques
Features of a Cheque
4 The amount specified is to be always
certain and must be clearly mentioned both In figures and words
5 The payee Is always certain
6 It is always payable on demand
Trang 45Cheques
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
Trang 46Cheques
Features of a Cheque
- Ultimately, there Is also at least one
endorsee which would typically be the financial institution servicing the payee’s
Trang 48Types of cheques
- Acheque used to pay wages due Is referref to as a payroll cheque
- Atraveller’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
Trang 49Features of a Cheque
- Acheque issued by a bank on Its own account for a customer for payment toa third party is called a Cashier’s cheque A Treasure’s cheque, a Bank cheque, ora
Bank draft
- Acheque issued by a bank, but drawn on
an account with another bank, Is a teller’s