BNK601 Glossary

BNK601 · Banking Laws & Practices · Short Notes-Final Term · 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 subsidiary bank owned by several different banks. Each owner bank has an equal share so that no bank is the majority shareholder. The owner banks are often in different countries. A consortium bank is created to finance a specific project; once the project is complete, the consortium bank dissolves itself. While they are not as common as they once were, they are useful when a project involves multiple currencies.

Hypothecation

Hypothecation is a legal transaction, whereby goods may be made available as security for a debt without transferring possession to the lender. Hypothecation is the practice where a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral, but it is "hypothetically" controlled by the creditor in that he has the right to seize possession if the borrower defaults.

Money market

MoneyMarket is a financial market which deals in short termdebt instruments. The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames.

Differentiation between blank and full endorsement

“When 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”.

An endorsement may be made in blank or full. Itmay also be restrictive.

Kinds of Endorsement:

The endorsements are divided as under: Blank or general Full or

special endorsement Restrictive endorsement Partial endorsement

Instrument endorsed in blank: Sec 54

Subject to the provisions hereinafter contained as to crossed cheques, a negotiable instrument endorsed in blank is payable to the bearer thereof even although originally payable to order.

Full or special endorsement: Sec 16

If the endorser signs his name only, the endorsement is said to be "in blank", and if he adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, the endorsement is said to be 'in full", and the person so specified is called the "endorsee" of the instrument.

R14 Auto Loans

Auto Loans mean the loans to purchase the vehicle for personal use.

REGULATION R-14- Classifications:

The auto loans shall be classified and provided for in the following manner:

Classification: Substandard. Determinant: where mark up interest or principle is overdue by 90 days or more from the due date.

Treatment of Income: Unrealized mark-up/ interest to be kept in Memorandum account and not to be credited to Income account except when realized in cash. Unrealized mark up/interest already taken to income account to be reversed and kept in Memorandum account.

Provisions to be made: Provision of 10% (25% from 31st December 2006) of the difference resulting from the outstanding balance of principal less the amount of liquid assets.

R-8-CLASSIFICATION AND PROVISIONING

The credit card advances shall be classified and provided for in

thefollowing manner:Classification: Loss. Principal is overdue by 180

days or more from the due date.

Determinant:Where mark-up / interest.

Treatment of Income: Unrealized mark-up / interest to be Provisions

to be made: Provision of 100% of the difference.

R-6-MARGIN REQUIREMENTS

Banks / DFIs are free to determine the margin requirements onconsumer facilities provided by themto their clients taking into