Requirement for examination…
Requirement for examination:
Finance: Finance means provision of funds from surplus economic units to deficit spender
Credit: Credit is the financial arrangement between lender and borrower along with some term and condition. It is the confidence of the lender on the ability and willingness of the borrower to repay the debt when dues.
Documents: Document is a written statement of facts evidencing certain transactions covering legal aspects duly signed by the authorized concerned persons having legal status.
Documentation: The execution of documents in proper from and according to the requirement of law is known as “Documentation.”
Security is an assets offered by the borrower at the time of borrowing money covering the debt. It is a things deposited as guarantee of an undertaking, which as act as an insurance against emergency need. It to be forfeited in case of default.
Charge: It is a legal transaction as a result of which the lender acquires certain rights over the property and the borrower is refrained from dealing in them.
Charge creation over Security: Charging a security means making it available as a cover for an advance.
Charge documents: These documents are required to proof in the court, the evidence of taking loan. DP Note, Letter of disbursement & continuity etc.
Security Documents: This documents are execute to create charge on the security offered against advances. Personal guarantee, Letter of lien & Hypothecation etc.
Lease: It is a contract between owner and user of the assets and owner gives right to use the assets within agreed period under consideration.
Operational Lease: It is short-term cancelable lease agreements. Convenience & instant service are the attribute of operating lease.
Financial Lease: It is long-term non-cancelable lease contract also known as Capital or Full-payment lease. The leasee is responsible for maintenance, taxes and insurance cost.
Hire-purchase:- The hire-purchaser agreed to take the goods on hire at a stated rental for adjustment of the liability within a specific period.
Guarantee:- It is an agreement to perform the promise or discharge the liability of third person in case of default.
Indemnity: It is a contract by which one-person promise to save the other loss caused to him by the conduct of promisor himself or by the conducts of any other person.
Syndication Loan: Finance by more than one lender to a single borrower against a common security under the leadership of lid-arranger.
Mortgage: It is a security interest in real property held by a lender as an assurance for a debt recovery. A mortgage is a transfer of landed property form the owner to the mortgage lender; on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed properly, otherwise the lender can liquidate the property to adjust the debt in case of default. A mortgage in itself is not a debt; it is the lender’s security for a debt.
Primary Security: Primary security is the security on which lender intends to establish their primary claim in case of default of the borrower, it is the main cover against credit
Collateral Security: Collateral security is an additional security, which is taken in addition to primary security to secured the debt as a second line defense.
Attachment of Un mortgaged property: Un mortgaged property: The property, which is free from any encumbrance or limitation, that presents a question of fact or law.
Attachment: Attachment is a preliminary procedure, meaning that something is seized before a final ruling is delivered.
So attachment of un-mortgaged property is to seize the right of borrower on his/her unencumbered property up to final ruling is delivered against the credit extended.
Pledge: Pledge is an actual delivery of the movable property to the lender as a security for a loan. It is the Bailment of goods as security for payment of a dept or performance of a promise. The ownership, however, remains with the borrowers. Transfer of possession, in the judicial sense, is essential in a valid pledge. In case of mortgage, the possession of the property remains to the borrower whereas in pledge, the lender is entitled to the exclusive possession of the property till the debt is repaid. Therefore, only movable goods can be pledged.
Hypothecation: It is a mode of creation an equitable charge against a property, for payment of a debt, which continues to be in the possession of the debtor. Hypothecation deed usually provides that the banker will have the power to take the goods hypothecated in it’s possession if the need arises. It is different from the pledge because there the assets remains in the possession of the lender.
Assignment: Assignment means transfer of right, property or debt by one person to another. The person transferring the right is known as assignor and the person to whom the right is transferred is known as assignee. The assignment may be legal in which the assignor must give a written notice of the assignment stating the name and address of the assignee to the debtor or it may be equitable where no such notice is sent. This form of charge is generally adopted for charging of book-debts, monies due from Government (supply bills) and the insurance policies etc. Bank generally go in for legal assignment and insist for obtaining an acknowledgement of assignment from the debtor.
Fixed Charge: A charge is said to be fixed if it is made especially to cover definite and ascertained assets of permanent nature.
Floating Charge: It is a charge on a property that is constantly changing. A floating charges over cash and stock-in-trade.
Fixed Charge and Floating Charge: It is a form of security usually taken by a lender from a company to secured repayment of a loan. The company who granting the charge is usually known as “Chargor” and the person to whom the charge is granted is typically Known as “Chargee”. The true ingenuity of the fixed and floating charge is that it permits the chargor to deal with and sell their stock, machinery, equipments etc. in the ordinary cause of business without requiring consent from the chargee. This form of security is called “Fixed and Floating” because the Chargee has the followings:
- An equitable charge over all the non-trading assets of Chargor, such as Property, Plant & machinery, Equipments, Intellectual Property Right, Book-debts, Insurance contracts and other contracts.
Pari-passu Charge: It is generally practiced in case of syndication lending where the lenders get preference proportioned with their participation.
Lien: It is the right to retain property in possession, which belongs to another till the debt is repaid. Lien gives a person only a right to retain the possession of the goods and not the power to sell unless such a right is expressly conferred by the statute or by custom or usage
Negative Lien: It is the form of a personal assurance or undertaking which has bindings effects but confers no right on the bank to proceed against the property itself and thus creates no-encumbrance or charge on the property. The borrowers sometimes have non-encumbrance assets, which are not charged, to the bank as security. The borrower is thus free to deal with these assets and may even sell them if he desires. To restrict this right of the borrower, bank may sometimes request him to give an undertaking to the effect that he will neither create any encumbrance on these assets nor sell without prior permission of the bank till advance continues. This type of undertaking or assurance is term as negative lien.
Set off: Set off is the right of combining of accounts between a debtor and a creditor so as to arrive at a net balance payable to one or the other. The bank can apply the right of set off if the following conditions are occurred:
- The customer holds both the accounts in the same capacity
- The repayment of dept is due, and.
- The liability of the borrower is for a sum which is certain,
Set off in relation to Bank means the right to apply the credit balance in customer’s account towards liquidation of debit balance in another account of customer provided both the accounts are maintained by him in the same capacity. The right may not be considered as absolute and the bank may be required to give a notice for exercising his right of set off. The right of set off should, however, not be exercised arbitrarily and a notice for combining the accounts must invariably be served by the bank on the customer.
Foreclosing of Mortgaged Property: It is a procedure by which the mortgage holder will sell the property upon the failure of the debtors to pay mortgage debt and, thereby, terminate their right in the property – When a borrower is default as per Artha-Rin-Adalat bank have the right to foreclose the mortgage property without interval of the court.
- Firstly the bank has to serve a legal notice to the borrower to final adjustment of loan liability within a fixed date. It may be called as “Final Notice or Call Back Notice”
- If the customer could not adjust the liability within the stipulated time then the bank will call “Auction Notice” against mortgage property as per Artha-Rin-Adalat section 12(3) and also advertise the same to the daily newspaper for bidding.
- The highest amount of bidder has to be chosen for purchasing the property and the sell proceeds should be used to adjust the loan account.
- If there is any amount due then the bank has the right to attached borrower other property to adjust the loan.
It an interest in providing landed security for the performance of a duty or recovery of a debt
Garnishee Order: An order of court or legal body by which a creditor can collect what a debtor owes by reaching the debtor’s property when it is in the hands of someone other than the debtors. It is issued in favor of a creditor to take the property of a debtor when the debtor does not possess the property for the debt.
Garnishment: Garnishment is a drastic measure for collecting a debt. A court order of garnishment allows a creditor to take the property of a debtor when the debtor does not possess the property. A garnishment action is taken against the debtor as defendant and the property holder as garnishee. Garnishment is regulated by statues, and is usually reserved for the creditor who has obtained a judgment, or court order against the debtor.
Non-Performing Loan: A non-performing loan is loan that is close to be default or is in default. All Loans, Advances, Discounted Bills, which are not recovered or renewed at maturity, due-date or expiry date all to be treated as Non Performing Loan. If partial recovery is made to a NPL, the un-recovered amount to be remain in NPL until full recovery. All classified loans are Non-Performing Loans but all Non-Performing Loans are not classified Loans.
The Non-Performing Loan A/c will not be treated as classified Loan un-till and un-less the loan is classified as per CL circulars of Bangladesh Bank.
Indicators of Non-Performing Loan:
- Slow or Negligible turn-over in A/c
- Frequent request for excess over-drawing without availability of funds in A/c.
- Irregular payment of overdue installment
- Delays in submission of stock statements
- Delay in compliance with the requirements of loan documentations
- Diversion of funds
- Delay in implementation of project schedules leading to cost escalation and requirement of additional term facilities.
- Current liabilities exceeds current assets
- Un-impressive financial statements
- The borrower is not traceable
- Particulars of borrowers properties are not available
- Upon request of the Bank, the borrower expressed inability to pay or does not respond.
- Borrowers business has faced a setback and has requested for further credit facilities
- The borrower maintains political clout that hinders the banker to progress with the issue of recovery
- The borrower has died and the responsibility of repayment of the loan can not be fixed up easily/ involves wrangle of legal procedure
- Documentations are irregular or security is insufficient or not properly charged.
Measures for recovery of Non-Performing Loan
- Whenever the loan becomes Non-Performing, the meter will be thoroughly examined to ascertain the reason of being the loan stuck up.
- In that cases efforts will be made to find out that for whose negligence either may be client or bank officials or economic scenario, the loan has been stuck-up.
- Expeditious action will to be taken on the basis of findings from through examination.
- The Branch will constantly communicate with the client and create constant pursue upon the clients for recovery of the bank dues
- While making recovery drive, performance will have to be given on amicable settlement.
- If all the initiative for amicable settlement fails, the legal action will be taken against the default borrowers
- The necessary statements on the Non-Performing Borrowers will be prepared by the branch and meticulous review thereof will have to be done.
- All the necessary statements on stuck up loan including CL will be prepared and submitted to Head Office for onward submission to Bangladesh Bank in time.
- Necessary database on the bank stuck-up Loan will have to be maintain
- Quarterly report on the position of bank’s Non-Performing Loan mentioning the trend will be prepared and submitted to the management
- Issuance of NOC to those borrowers who have completely adjusted their liability
- When all measures fail to recover NPL, Legal action are taken against the defaulted borrower
- Legal notice is served to the default borrower
- Suit filed in the respective courts
- Take all the measures to ensure compliance with the terms and conditions stipulated in the sanction advice
- Completion of documentation formalities properly before disbursement
- Maintenance of disbursement schedule as per sanction advice
- Close persuasion as well as follow-up to ensure the end use of the Loan
Troubled loan: Non performing loan, also known as troubled loan.
Signals of NPL/ Traubel Loan
- Thin Margins
- Liquidity question
- Adverse business and employment conditions
- Insufficient collateral
- Insufficient income
- Payment of interest and principal may have been renegotiated or restructured.