Life Policy

Loans are given up to 90% of the surrender value on the life policy of the borrower. Merits of life policies as collateral are:

• It is easy to find out their correct price.
• Banks has a lien on the amount of policy can be ascertained from the insolvent.
• The Tittle of the policy can be ascertained from the Insurance Company.

The Demerits are:

• If life policy is can celled due to some wrong information supplied to the Company, then the bank will not get any payment.
• Surrender value of the policy is uncertain.

A banker, therefore, must take care to ascertain whether or not the age of the assured is admitted. The policy should be properly assigned. Endowment policies should be preferred to whole life policies.

Goods And Documents of Tittle

Banks can give loans on the security of goods or documents of tittle viz.. Railway Receipt, Bill of Lading, Dock Warrant etc. Merits of such collateral's are quite easy to sell, loan being short-termed, risk of loss is not great, and there is no danger of money being drowned. Demerits are:

• Difficulty in getting suitable accommodation for warehousing of the goods.
• Risk of damage to good.
• Goods in the category of comfort and luxury are subject to violent fluctuations.
• Difficulty for bank to release goods in installment.
• Documents may be forged.

It is, therefore, essential that banks should keep a proper margin between the amount of loan and the price of goods.Only such goods as can be sold quickly should be accepted as security.

Stock Exchange Securities

Under these collaterals we include securities issued by a Government, semi-government and local authorities. Shares of industrial and commercial companies also come in this category. The merits of such collaterals are quick sale. No difficult in transfer of ownership, stability in prices, loans can be secured from other banks, and prices thereof can be ascertained from stock exchanges.

Demerits of such collaterals may by such as responsibility of party paid-up shares may by on bank and certain securities may not be marketable. Hence, while accepting stock exchange securities as security, banks should always keep in view that they should be free from all defects of ownership, fluctuations in their prices should be limited, and that they should be fully paid. 

Securities Demanded by a Banker

The loans which a banker grants to his customers may be classified in to secured and unsecured loans. Unsecured loans are so called because they are secured only by the promissory notes signed by the customers and not secured by any other additional security. In granting personal loans, therefore, a banker first satisfy himself with regard to the financial stability and integrity of the borrower by examining his balance sheet.

Where the personal security of the borrower is considered inadequate, a banker may require him to furnish some additional security. This may take the form of a guarantee by a third person or a deposit of tangible securities. Such securities as are deposited by way of security for the loan are known as Collaterals. The most common collaterals are discussed above. 

Market Ability of Securities

Securities which are easily sold in the open market, are good for investments. First class securities are considered safe from the point of view of investment. Government securities, shares and debentures of sound companies, first class bills of financially sound parties, are good enough for investment. The securities for which there is a demand in the open market, are to be discarded for investment.

P Versification of Risks

" All eggs should not be in one basket" if the advances are made to different persons instead of one-party, or to many factories, the risk is divided, and at least we can count upon some advances to give good returns and to be repaid in due time.

Security of Funds

The banks creates invest able funds by accepting deposits from the individual. That is, it invests such money as is not its own. Because the funds are not its own, the security of these funds is the prime important factor to be considered while investing the funds. To ensure security, the banker must see

• Investment or Advances are not made to any one individual or business or one factory.
• The Funds are not advanced for long term.
• The advances are made after procuring adequate security.
• The advances are not made against immovable properties.

Productivity of Investment

The investment are for profit. Some return, reasonable enough, should be received on the investments. A commercial bank carries transaction to earn profit. The profit should be sufficient to meet the the necessary and to satisfy the shareholders who have invested their money keeping an eye on the profits. There should be a reasonable coordination between the liquidity and profitability of the investments.

Liquidity

A banker must see whatever amount he is investing and wherever investing the liquidity of funds is necessary to be maintained. Liquidity means the amount invested must be always available on demand by the bank. In case of emergency of cash demand the banks should be able to count upon the investment to be turned into cash to meet the immediate and urgent need of cash. If the investment is not liquid enough the bank may find itself in difficult conditions which may lead to the end of the bank itself. A banker must not invest its money to immovable assets. According to M.I Tannan, a banker must understand the differences between investment and mortgages.

Investment By A Banker

No Two persons, institution can think and action a particular subject in the same direction. They differ on some points though they may agree on other points. The same thing is applicable about the principles of safety of invested funds by a banker. Different banks have their own ways to safeguard their funds. But there are certain fundamentals over which majority of bankers do agree as to the safety of their funds to be invested the main things that one keep in mind.

Central Bank

Almost every country in the world has a Central Bank. In Pakistan. State Bank of Pakistan is the Central Bank of the country. A Central Bank performs special work. It occupies a central position in monetary and banking structure of a country. It issues notes, it controls currency and credit in a country. A Central Bank acts a Government Bank. It also acts as the banker's bank. All the banks of a country keep a certain amount of their balances with the Central Bank. It lends money to the scheduled banks. It also regulates the exchange rate. It establishes the value of money.

Exchange Banks

These are banks which are generally found on the port towns. They finance the import and export trade of a country. In Pakistan, they finance the export trade against D/A bills and the import trade against D/P bills. Beside this, such banks also finance some internal trade in the country. They receive a letter of hypothecation from the persons wanting a loan so that their loans may be safe. They also purchase and sell foreign securities.

Savings Banks

Saving Banks are established to encourage thrift and to discourage hoarding. They mobilizing the savings of men of small means. They collect their savings. They pay interest on the deposits of the people. These banks also provide them (depositors) the necessary facilities to withdraw money according to their needs. They allow drawls of small amounts only. Post Offices in Pakistan also provide this facility. People generally keep their savings in the Post Office Savings Banks. Commercial Banks also render this service.

Industrial Banks

These are special types of banks. They lend money to the industries for purchasing machinery land, building, furniture etc. They advance credit for long periods, 10,15 or 20 years. They receive deposits for long periods. They generally raise fund by issuing debentures. These banks also keep an expert staff to judge the value of land, building, machinery etc. Of the industries. There are hardly such banks in Pakistan. In foreign countries like Japan and Germany, these banks have helped a great deal in the development of these countries. Industries Development Bank of Pakistan (IDBP) and Pakistan Industrial Credit and Investment Corporation (PICIC) are playing very important role for financing and promoting industries in Pakistan.

Land Mortgage Banks

These banks advance loans to cultivators for long term needs such as the paying off old debts, purchasing of land, purchasing costly machinery and effecting permanent improvement of land. They keep expert evaluators of land and on receipt of an application for loan.they get the land valued and find out that the land is not ready pledged or encumbered.They do not advance money for more than 50% value of the land mortgaged with them. Hardly there is a bank of such a nature in Pakistan, although the need for them is very great.

Cooperative Banks

These banks grant loan to agriculturist for financing current agriculture needs such as for purchasing seeds, manure, implements, ploughs, bullocks and even fir digging wells and purchasing land. These banks mostly raise their funds from loans, reserve fund and sometimes from share capital. They do not generally receive deposits. They generally lend money on personal security. The underlying principle of these banks is generally self-help.

Commercial Banks

There banks deal with businessmen and traders. They receive money on fixed, current, saving and home safe account. They lend money for short periods of three months against easily marketable securities such as bills of exchange, agricultural produce like jute, rice, wheat etc and government securities. There are schedule banks in Pakistan, They grant loans for financing trade and industry where money is required for financing temporary contingency.

Kinds Of Banks

In the present world of specialization we come across different types of banks. All of them are called banks, because they borrow money from the public and later on lend it to the public in need. But they differ from one another in the following respects

W.T.O

There was once a time when countries concentrated on increasing exports and reducing imports. Countries did not believe imports to be a very good things. They imposed restrictions on the imports of goods from different countries. This phenomenon was called mercantilism. But in recent years, efforts have been made to encourage free trade between countries.

W.T.O was established on 15th April 1994. It stands for World Trade Organization. It replaced an earlier organization GATT. It was established with a primary objective to promote free trade between countries. At the time of establishment, 117 countries joined the organization. Later many more countries entered the bracket of W.T.O. In 2004, the deadline for removing unnecessary restrictions on imports passed away. Now, the joining countries are obliged to allow everyone who wants to exports goods to the joining countries. W.T.O also recognize intellectual property rights and its rules and regulations cover traditional goods and services as well as intellectual properties.  

Source of Foreign Exchange

Agricultural sector supplies raw materials and semi-finished items to the different countries of the world through which foreign exchange is earned. The earned foreign exchange is consumed on the purchase of the goods and services which do not produce but they are indispensable for the development of the economy like minerals, machines, heavy chemicals, tools etc. In other words agricultural sector is not only the source of foreign exchange earning but is also plays the important role in making the industrial base sound and stable.