1. Revise Lecture 22

2. Evaluation of Loan proposals
Which variables should be consider?

3. 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;

4. 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
Regulatory environment

5. 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;
Operating margins
Stability and growth of market share
Access to key raw materials
Benefit from economies of scale

6. 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
Working capital management
Interest rate risk management

7. 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.

8. Negotiable Instrument

9. 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’

10. 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.

11. What are the two features of negotiable instruments?

12. Negotiable Instrument
A negotiable instrument must possess two features;
1. The right of ownership contained in the instrument can be transferred from one person to another by mere delivery if it is payable to bearer, or by endorsement and delivery if payable to order.

13. Negotiable Instrument
2. The transferee taking the instrument in good faith and for consideration gets a good title to the same even though the title of the transfer is defective.

14. What the essential characteristics of a negotiable instruments?

15. Negotiable 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 negotiable by endorsement and delivery and an instrument payable to bearer is negotiable by mere delivery.

16. Negotiable Instrument
3. Presumption as to holder:
Every holder of negotiable instrument is presumed 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 of transferor.

17. Negotiable Instrument
5. Presumption as to considerations:
Every negotiable instrument is presumed to have been made, drawn, accepted, endorsed, negotiated or transferred for considerations.

18. What are the main negotiable instruments are?

19. Negotiable Instrument
The main negotiable instruments are;\
Promissory notes
Bill of exchange
Cheques

20. Negotiable Instrument
Promissory notes
According to the definition;
A document 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 note.

21. Negotiable Instrument
The characteristic features of a promissory note are;
A promissory note must be in writing, duly signed by its maker and properly stamped as per the Pakistan stamp Act.
It must contain an undertaking or promise to pay.
The promise to pay must not be conditional.

22. Negotiable 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 certain or capable of being made certain. It means that the sum payable may be in figure or may be such that it can be calculated.

23. Negotiable Instrument
A promissory note does not require any acceptance because the maker of the promissory note himself promise to make the payment.
There are primarily two parties involved in a promissory note;
Maker / drawer
Drawee /payee

24. Negotiable 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.
The endorsee: the person in whose favour the note is negotaited by endorsement.

25. Lecture 23

26. Bill of Exchange

27. Bill 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 instrument.

28. Bill 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.
The maker of the bill of exchange must sign on it.

29. Bill 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 to a certain person.
8. The amount mentioned is payable either on demand or on the expiry of a fixed period of time.

30. Bill of Exchange
9. The bill of exchange must be stamped as per the requirement of law.

31. Bill 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 accepted either by the person upon whom it is drawn or by someone else on his/her behalf.

32. Bill of Exchange
Parties to a Bill of Exchange

33. Bill of Exchange Parties to a Bill of Exchange
There are three parties to a bill of exchange;
The drawer is the maker of the bill of exchange.
The drawee is the person upon whom the bill of exchange is drawn.
The payee is the person to whom the payment is made.

34. Bill 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 discounted the bill will become the payee.

35. 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.

36. Bill of Exchange
CHEQUES

37. 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 amount to the order f the person named therein or to the bearer.

38. 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.

39. 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.

40. Cheques Cheques generally contain; Place of issue Cheque number
Date of issue
Payee
Amount of currency

41. Cheques 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 otherwise indicated, this varies depending on where the cheque is drawn.

42. Cheques
Features of a Cheque

43. 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.

44. Cheques
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. 7.The cheque must bear a date, otherwise it is invalid and shall not be honoured by the bank.

45. 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.

46. 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.

47. Types of Cheques

48. 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 be replaced if lost or stolen.

49. 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.