In the name of Allah the most Beneficent

and the most Merciful..!

 Presented to:

Madam Naseem
Bukhari
Presenters:
 Usman Ghani
 Sehrish mubarak
 Nouman Farooq
 Farah Shah
 Fatima Khawaja
Advancing & Monitoring
Credit
 Credit
When a person obtains loan on the
security of his property and takes
the responsibility for its payment
in future, it is called credit. (D.G.
Locket)
General Principles of Lending
 Safety
 Liquidity
 Dispersal
 Remuneration or Profitability
 Security
Safety: Six C’s of Credit
"Safety of loan is always preferred over profit."
 Character
 Capacity
 Capital
 Conditions
 Cash flows
Safety: Six C’s of Credit
Character
“The sobriety, the promptness of payment, good habits,
personality, the ability and willingness to carry a
project through from the beginning to the end, and
the reputation of the people with whom he deals, will
go to make the character of the customer.”
Safety: Six C’s of Credit

Capacity:
This is the management ability factor which tells how
successful businessman has been in the past and what
are the chances in future.
Safety: Six C’s of Credit
Capital
This is the monetary base of the business.
The bankers should know not only the extent
of funds from the entrepreneurs but the
sources of these funds too.
Safety: Six C’s of Credit

Conditions
The bankers must carefully examine the
conditions to foresee the situations which may
affect the repayment of the loan by the
borrower.
Principles of Lending : Liquidity

Liquidity means the possibility of recovering the

advance in emergency, because all the money
borrowed by the customer is repayable on demand.
Principles of Lending : Liquidity

The banker must ensure that the money he is lending is

not blocked for an undue long time and that the
borrowers are in such a position as to pay back all the
amount outstanding against them on short notice.
Principles of Lending : Dispersal
 The banker must ensure that his funds are not
invested in only specific sectors
 He must see that from his available funds he
advances them to a wide range of sectors
 Dispersal reduces risk
Principles of Lending : Remuneration

 A major portion of the banker’s earnings

comes from the markup or the return
charged on the money borrowed by the
customer
 He should prefer a borrower who offers:
 Higher rate of return
 Lesser risk
Suitability:
It means that the advance should be allowed not only
to the carefully selected and suitable borrowers, but
also in keeping with the overall national development
plans chalked out by the authorities concernedbefor
giving the loan the banker should ensure that the
lending is for the purpose in conformity with the
current credit policy laid down by the central bank of
the country.
Classification of securities
Sehrish Mubarak
Principles of Lending : Security

A security is an interest or a right in property given to

the creditor to convert it into cash in case the debtor
fails to meet the principal and interest on the loan.
Classification of Securities
Personal/Intangible Securities
Tangible Securities
Primary Security
Collateral/Secondary Security
Movable Securities
Immovable Securities
Qualities

of a Good Security
Marketable
Easy valuation
Stability
Storability
Less cost of supervision
Transportability
Free from liabilitied
 Corporate Financing
Corporate financing deals with large scale
business.
Small & Medium Enterprise Banking
Sales T/O Productive Employee
Assets

Manufacturi Rs.300 Rs.100 250

ng concern million million

Trading Rs.300 Rs.50 50

concern million million
Consumer Banking
Any financing allowed to individuals for meeting their
personal, family or household needs.
Consumer Banking
Credit Cards
Auto Loans
Housing Finance
Personal Loans
 Micro Financing

It deals with small business such as sole

proprietor
Agricultural Finance

Farmers generally need 3types of loans:

 Short-term loans
 Medium-term loans and
 Long-term Loans.
Categorization of loans
Nouman farooq
Categorization of Loans
Secured loans
Unsecured loans
Categorization of loans
Short term loans
Long term loans
Revolving Credit
Short Term Loans
With maturities 1 year or less
Finance working capital needs
May be Secured or Unsecured
Long Term loans
Maturities more than 1 year
Repayments are structured based on future cash
inflows
Finance permanent working capital needs
Fully disbursed at inception
Max. tenure is of 10 years
Revolving credit
Offers flexibility to buyers
Period of 1 year or more
Usually secured
Types of Lending
Fund based Lending
Non-Fund based Lending
Fund based lending
Cash Credit / Cash finance
Running finance / Overdraft
Demand Finance / Loans
Cash Credit
Similar to current deposit account
Bank specifies a credit limit that is backed up by prime
securities
Provided on mark up basis
Cash Credit
Demerit:
Leads to higher transaction costs for the bank
Running Finance / Overdraft
Most common form of lending
It is the excess with drawl then the borrowers credit
balance
May be Secured or Clean overdraft.
Diff between cash credit and overdraft
Cash credit Overdraft
Long term concerns Temporary
Used on regular basis accommodation
Occasionally used
Demand Finance / loans
Have fixed amount
Repayable in periodic installments or lump sum at a
fixed date
May be secured or clean
Non-Fund based credit
Letter of Credit
Bank Gurantee
Letter of credit
Generally used for international sales transactions
Payment undertaking given by a bank to the seller on
behalf of the buyer
Bank Guarantee
Bank acts as a guarantor for its client
Bank has to pay if its clients gets default
Various Modes of Creating
Charge
Farah shah
Charge

“Where property of one person is, by act of

of law, made security for the repayment of
money to another, the bank is said to
have a charge on property and all the
provisions in this before contained which
apply to simple mortgage shall apply to
it.”
(Transfer of Property Act)
Types of Charge
First charge
“A charge that is being created by first
Bank”
Second Charge
“First Charge has been executed in favor of
some other lender.”
 Can be created only after obtaining NOC
from the 1st charge holder.
Types of Charge

Pari Passu Charge

 Having equal rights, Risks and Rewards.
 Rights attached to the property for one
financer are the same as for other financer
Types of Charge

Fixed Charge / Mortgage

“Created on some space and ascertained
property of company”
Prevents dealing in these assets
Types of Charge

Floating Charge
“Charge on the current assets ofthe
company dually registered with SECP”
 Company freely deals in its assets
Kinds of Charge

 Lien
 Mortgage
 Pledge
 Hypothecation
Kinds of Charge
Lien

“Lien is the banker’s right to retain property belonging

to a debtor until the claim on property is paid”

 Merely a right to retain property and is lost when the

possession is lost
Kinds of Charge: Lien

Banker’s Lien
 Implied pledge
 Banker has a right to sell security after a
reasonable notice.
Kinds of Charge : Mortgage
“Transfer of interest in immovable property, for
the purpose of securing payment of money
advanced or to be advanced by way of loan
(finance), on existing or future debt .”

 Instrument by which transfer is effected is

Mortgage Deed
The transferor is called mortgagor and the
transferee a mortgagee.
Kinds of Charge : Mortgage
From Bankers point of view:

 Legal (Registered) Mortgage

 Simple (Equitable) Mortgage
Kinds of Charge : Mortgage
Legal (Registered) Mortgage
 Created via a separate Mortgage Deed
 Registered under Registration Act 1908
 Mortgagor provides a right to Mortgagee to
sell the Mortgaged property for adjustment
of outstanding debt in case of default by
borrower
 Original Title Deed also deposited with
bank
Kinds of Charge : Mortgage
Simple (Equitable) Mortgage
 Also referred to as “Mortgage by Deposit of
Title Deed”
 Borrower/ Mortgagor delivers, to bank the
original Title Deed of the Property
 Original title documents are released to
the Mortgagor on complete adjustment of
finance with mark up
Kinds of Charge
Pledge

“The bailment of
goods as security for
payment of debt or performance of a
promise”
 Ownership remains with the pledger
(Borrower)
 Possession remains with the pledgee
(Bank)
Kinds of Charge : Pledge

 In case of default pledgee has power of sale

after giving due notice to the pledger
 Surplus, if any paid back to the borrower
Kinds of Charge : Hypothecation

“A legal transaction whereby goods may be

made available as security for a debt without
transferring either the property or the
possession to lender”

Ownership and possession…with borrower

Relates to movable property