Loan StructuringLoan Structuring

To develop such harmonized terms of To develop such harmonized terms of lending contract which will meet the lending contract which will meet the interests and needs of the lender and interests and needs of the lender and the borrower.the borrower.

Loan structuring plan focuses on the Loan structuring plan focuses on the followings:followings: Amount of loan /finance.Amount of loan /finance. Period of finance.Period of finance. Rate of mark-up (Loan pricing).Rate of mark-up (Loan pricing). Repayments (installments).Repayments (installments).

Loan support:Loan support:

Collaterals.Collaterals.Guarantees.Guarantees.Completion of Completion of Documentation formalities Documentation formalities before disbursement of before disbursement of loanloan

Registration of charge.Registration of charge.

Type of Finances/Credits:Type of Finances/Credits:

Fund Based.Fund Based. Non-Fund Based.Non-Fund Based.

Trade Finances include:Trade Finances include:

Export finance.Export finance.Finance against foreign Finance against foreign bills.bills.

Foreign bill purchased.Foreign bill purchased.Packing credits.Packing credits.SBP’s export finance SBP’s export finance schemescheme

Import Finances.Import Finances.

Import letter of credit.Import letter of credit. Payment against Documents. Payment against Documents. PAD & alsoPAD & also

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

Finance against Imported Finance against Imported Merchandise (FIM).Merchandise (FIM).

Sectoral finances Sectoral finances Include:Include:

Industrial Finance.Industrial Finance.

Agricultural Finance.Agricultural Finance.

Finance for Construction/Housing.Finance for Construction/Housing.

Consumer FinanceConsumer Finance

Syndicated Syndicated finance/Consortium financefinance/Consortium finance

Number of banks participate in Number of banks participate in this type of financing.this type of financing.

Lead Bank – Lead Manager.Lead Bank – Lead Manager. Participating Banks.Participating Banks. Borrowers/Customers comprise Borrowers/Customers comprise

of Government/Public sector of Government/Public sector organizations or corporate organizations or corporate entitiesentities

Fees:Fees: Comuitment fee, Comuitment fee, Management fee etc.Management fee etc.

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

Collaterals:Collaterals:

Collaterals serve as safety valve Collaterals serve as safety valve and provide the creditor a and provide the creditor a recourse to collateral (security) recourse to collateral (security) in case of default by borrower in case of default by borrower (customer).(customer).

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

Attributes of a good Attributes of a good collateral:collateral:

1)1)Readily Encashable Readily Encashable /Realizable./Realizable. Readily Readily

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

2)2) Adequate in Value:Adequate in Value:

Value of security must be adequate Value of security must be adequate to enable the to enable the bank to secure the bank to secure the outstanding amount of principal outstanding amount of principal and mark-up (interest). Proper and mark-up (interest). Proper margins to be retained while margins to be retained while accepting a securityaccepting a security

3)3) Clear Title:Clear Title:

Title of security offered by the Title of security offered by the borrower (mortgagor etc. ) should borrower (mortgagor etc. ) should be clear and unambiguous.be clear and unambiguous.

No liability to third partyNo liability to third party 4) Safety: 4) Safety: The asset offered as security should The asset offered as security should

be safe and durable.be safe and durable.

Perishable items, explosives etcPerishable items, explosives etc. are . are not treated safe as securities.not treated safe as securities.

Forms of Securities:Forms of Securities:

1)1) Mortgage.Mortgage.

2)2) Pledge.Pledge.

3)3) Hypothecation.Hypothecation.

4)4) Lien.Lien.

5)5) Guarantee.Guarantee.

6)6) Listed Stocks (shares).Listed Stocks (shares).

7)7) Government securities.Government securities.

MortgageMortgage

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

mortgage as:mortgage as:

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

Rights of Mortgagee Rights of Mortgagee (Bank):(Bank):1)1) To sell the mortgaged property To sell the mortgaged property

in case of default by mortgagor.in case of default by mortgagor.

2)2) Right to fore-closure.Right to fore-closure.

3)3) Right to file suit.Right to file suit.

Types of Mortgage:Types of Mortgage:a)a)Registered or Legal Registered or Legal

Mortgage.Mortgage. This is created through a This is created through a

formal document called formal document called mortgage deed.mortgage deed.

Mortgage deed is registered Mortgage deed is registered with the Registrar of titles.with the Registrar of titles.

It is comparatively expensive It is comparatively expensive involves stamp duty and involves stamp duty and registration feeregistration fee..

Types of Mortgage:Types of Mortgage:

b)b) Equitable Mortgage:Equitable Mortgage:

This is created by deposit of title This is created by deposit of title deed by the mortgagor.deed by the mortgagor.

Memorandum regarding deposit of Memorandum regarding deposit of title deed is also signed by title deed is also signed by respective parties.respective parties.

Clear title of the deed must be Clear title of the deed must be ascertained by the bank/mortgageeascertained by the bank/mortgagee

Pledge:Pledge:

According to section 172 of the According to section 172 of the Contract Act:Contract Act:

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

Bailment-- Defined:Bailment-- Defined:

According to Section 148 of a Contract According to Section 148 of a Contract Act 1872:Act 1872:

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

BailmentBailment

The pledgee (Bank) has actual The pledgee (Bank) has actual control of pledged stocks/Goods.control of pledged stocks/Goods.

Pledgee can sell pledged stocks Pledgee can sell pledged stocks by giving reasonable notice to by giving reasonable notice to the borrower.the borrower.

Before disposal, pledgee should Before disposal, pledgee should publish the notice through publish the notice through news news papers etc.papers etc.

Hypothecation:Hypothecation:

““Hypothecation is a legal transaction, Hypothecation is a legal transaction, whereby goods may be made available whereby goods may be made available as security for a debt without as security for a debt without transferring possession transferring possession

to the lender”.to the lender”.

Rights of Lender (Bank).Rights of Lender (Bank). To inspect Godowns.To inspect Godowns. To demand stock reports from the To demand stock reports from the

borrower.borrower. To get the stocks insured.To get the stocks insured.

Lien:Lien: ““Lien is a charge given by the customer (borrower) Lien is a charge given by the customer (borrower) to a to a bank over some securities”.bank over some securities”.

Letter of lien must be obtained from the Letter of lien must be obtained from the borrower (customer). It can be over stocks borrower (customer). It can be over stocks (shares), fixed deposits, bank accounts etc.(shares), fixed deposits, bank accounts etc.

In case the security offered is issued by the In case the security offered is issued by the third party the notice may be issued to the third party the notice may be issued to the respective party regarding the same.respective party regarding the same.

lien to be noted on the said lien to be noted on the said property/security.property/security.

According to companies ordinance 1984 According to companies ordinance 1984 “every charge created by a limited company “every charge created by a limited company must be registered with the Registrar of must be registered with the Registrar of Companies.Companies.

Guarantee:Guarantee:

““Guarantee is a contract to perform the Guarantee is a contract to perform the promise or discharge the liability of promise or discharge the liability of a third person is case of his default”.a third person is case of his default”.

Rights of Creditor:Rights of Creditor: To recover the amount from the To recover the amount from the

guarantor in case the principal debtor guarantor in case the principal debtor defaults.defaults.

To sue the guarantor.To sue the guarantor. A banker can sue principal debtor and A banker can sue principal debtor and

the guarantor at the same time,the guarantor at the same time,

INDEMNITYINDEMNITY

A contract of indemnity is a contract by A contract of indemnity is a contract by which one party promises to save the which one party promises to save the other from loss caused to him by the other from loss caused to him by the conduct of the promisor him self or by conduct of the promisor him self or by conduct of any other person.conduct of any other person.

ILLUSTRATION:ILLUSTRATION:

Issuing a duplicate demand draft on Issuing a duplicate demand draft on production of indemnity bond. production of indemnity bond.

Parties in a contract of IndemnityParties in a contract of Indemnity Indemnity holderIndemnity holder Indemnifier Indemnifier

Rights of indemnity holder: Sec 125Rights of indemnity holder: Sec 125 right to recover the damages in lieu of right to recover the damages in lieu of

suit filed against himsuit filed against him To recover any expanses with regard to To recover any expanses with regard to

any suit filed or contested by him. any suit filed or contested by him. In case of compromise , the indemnified In case of compromise , the indemnified

can recover the expanses which he has can recover the expanses which he has incurred in lieu of this compromiseincurred in lieu of this compromise..

INDEMNITY INDEMNITY

Rights of indemnifier:Rights of indemnifier: Indemnifier is protected under general Indemnifier is protected under general

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

INDEMNITY INDEMNITY