bnk601 short notes

8/12/2019 BNK601 Short Notes

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BNK601 Short Notes

Banking Laws & ractices

Consortium finance

Under consortium financing, several banks (or financial institutions) finance a single

borrower with common appraisal, common documentation, joint supervision and follow-

up exercises. It is a subsidiar bank owned b several different banks. !ach owner bank

has an e"ual share so that no bank is the majorit shareholder. #he owner banks are

often in different countries. $ consortium bank is created to finance a specific project%

once the project is complete, the consortium bank dissolves itself. &hile the are not as

common as the once were, the are useful when a project involves multiple currencies.

Hypothecation

'pothecation is a legal transaction, whereb goods ma be made available as securit

for a debt without transferring possession to the lender. 'pothecation is the practicewhere a borrower pledges collateral to secure a debt. #he borrower retains ownership

of the collateral, but it is hpotheticall controlled b the creditor in that he has the right

to seie possession if the borrower defaults.

Money market

*one *arket is a financial market which deals in short term debt instruments. #he

mone market is a component of the financial markets for assets involved in short-term

borrowing and lending with original maturities of one ear or shorter time frames.

Differentiation between blank and full endorsement



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+&hen the maker or holder of a negotiable instrument signs the same, otherwise than

as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of

paper annexed thereto, or so signs for the same purpose a stamped paper intended to

be completed as a negotiable instrument, he is said to indorse the same, and is called

endorser.

$n endorsement ma be made in blank or full. It ma also be restrictive.

inds of !ndorsement

#he endorsements are divided as under

/lank or general

0ull or special endorsement

1estrictive endorsement

2artial endorsementInstrument endorsed in blank: Sec 54

3ubject to the provisions hereinafter contained as to crossed che"ues, a negotiable

instrument endorsed in blank is paable to the bearer thereof even although originall

paable to order.

Full or special endorsement:Sec !

If the endorser signs his name onl, the endorsement is said to be in blank, and if he

adds a direction to pa the amount mentioned in the instrument to, or to the order of, a

specified person, the endorsement is said to be 4in full, and the person so specified is

called the endorsee of the instrument.

"4 #uto $oans

$uto 5oans mean the loans to purchase the vehicle for personal use.

1!6U5$#I78 1-9:- ;lassifications

#he auto loans shall be classified and provided for in the following manner

;lassification 3ubstandard.

das or more from

the due date.

#reatment of Income Unrealied mark-up? interest to be kept in *emorandum account

and not to be credited to Income account except when realied in cash. Unrealied



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mark up?interest alread taken to income account to be reversed and kept in

*emorandum account.

2rovisions to be made 2rovision of 9>@ (AB@ from C9st >D) of the

difference resulting from the outstanding balance of principal less the amount of li"uid

assets.

"%&%C$#SSIFIC#'I() #)D *"(+ISI()I),

#he credit card advances shall be classified and provided for in the following manner

;lassification 5oss.

2rincipal is overdue b 9E> das or more from the due date.

>@ of the difference.

"%!%M#",I) "-./I"-M-)'S

/anks ?


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$ 4sight4 5; means that pament is made immediatel to the beneficiar?seller?exporter

upon presentation of the correct documents in the re"uired time frame.

In a sight pament, the commercial letter of credit is paable when the beneficiar

presents the compling documents and if the presentation takes place on or before the

expiration of the commercial letter of credit.

&hereas Usance 5etter of ;redit (5?;) is a 5etter of credit that calls for pament at a

future date. It is generall within six months and re"uires a draft drawn on the

issuing?paing bank for the amount of the invoice.

-ndorsement

&hen the maker or holder of a negotiable instrument signs the same, otherwise than assuch maker, for the purpose of negotiation, on the back or face thereof or on a slip of

paper annexed thereto, or so signs for the same purpose a stamped paper intended to

be completed as a negotiable instrument, he is said to indorse the same, and is called

endorser.

Differentiation between li1uidity risk 2 operational risk

5i"uidit risk is the current and potential risk to earnings and the market value of

stockholdersF e"uit that results from a bankFs inabilit to meet pament or clearing

obligations in a timel and cost-effective manner.

&here operational risk refers to the possibilit that operating expenses might var

significantl from what is expected, producing a decline in net income and firm value.

7perational risk is the risk of loss resulting from inade"uate or failed internal processes,

people, and sstems, or from external events.

#d3anta0es of letter of credit risk

0ollowing are the advantages of 5;

6eneral global acceptabilit b the interacting parties.



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#he beneficiar is assured of pament as long as it complies with the terms and

conditions of the letter of credit. #he letter of credit identifies which documents must be

presented and the data content of those documents. #he credit risk is transferred from

the applicant to the issuing bank.

6 #he beneficiar can enjo the advantage of mitigating the issuing bankFs countr risk

b re"uiring that a bank in its own countr confirm the letter of credit. #hat bank then

takes on the countr and commercial risk of the issuing bank and protects the

beneficiar.

4 #he beneficiar minimies collection time as the letter of credit accelerates pament

of the receivables.

5 #he beneficiarFs foreign exchange risk is eliminated with a letter of credit issued in

the currenc of the beneficiarFs countr.SM-

3mall and medium enterprises are companies whose headcount or turnover falls below

certain limits. #he companies are usuall defined as an organiation with fewer than 9>

emploees.

*owers of arbitrator

7a8 #he arbitrators or umpire shall, unless a different intention is expressed in

agreement, have power to (a) administer oath to the parties and witnesses appearing.

7b8 state a special case for the opinion of the ;ourt on an "uestion of law involved, or

state the award, wholl or in part, in the form of a special case of such "uestion for the

opinion of the ;ourt.

7c8 #he arbitrators or umpire shall, unless a different intention is expressed in

agreement, have power to (c) make the award conditional or in the alternative.

7d8 ;orrect in an award an clerical mistake or error arising from an accidental slip or

omission.

7e8$dminister to an part to arbitration such interrogatories as ma, in the opinion of

the arbitrators or umpire, be necessar.



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#ttributes of 0ood collateral

;ollateral is considered to be good collateral if it possesses the following attributes.

$de"uate

1eadil en cashable realiable

6 3ufficient.

9ank

/ank means a banking compan as defined in the /anking ;ompanies 7rdinance,

9=DA.9orrower

/orrower means an individual to whom a bank ?


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2referred stock is a hbrid securit because it combines features of common stocks and

bonds. $t the same time, it has several uni"ue features that set it apart from both.


bnk601 short notes

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