Revolving Credit

Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Credit cards are an example of revolving credit used by consumers. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations. They were first introduced by the Strawbridge and Clothier Department Store.

It is an arrangement which allows for the loan amount to be withdrawn, repaid, and redrawn again in any manner and any number of times, until the arrangement expires. Credit card loans and overdrafts are revolving loans, also called evergreen loan.

 

In this case-

• The borrower may use or withdraw funds up to a pre-approved credit limit.
• The amount of available credit decreases and increases as funds are borrowed and then repaid.
• The credit may be used repeatedly.
• The borrower makes payments based only on the amount he or she has actually used or withdrawn, plus interest.
• The borrower may repay over time (subject to any minimum payment requirement), or in full at any time.
• In some cases, the borrower is required to pay a fee to the lender for any money that is undrawn; this is especially true of corporate bank revolving-credit loans.

A revolving loan provides a borrower with a maximum aggregate amount of capital, available over a specified period of time. Unlike a term loan, the revolving loan allows the borrower to draw down, repay and re-draw loans on the available funds during the term of the note. Each loan is borrowed for a set period of time, usually one, three or six months, after which time it is technically repayable. Repayment of a revolving loan is achieved either by scheduled reductions in the total amount of the loan over time, or by all outstanding loans being repaid on the date of termination. A revolving loan made to refinance another revolving loan which matures on the same date as the drawing of the second revolving loan is known as a "rollover loan", if made in the same currency and drawn by the same borrower as the first revolving loan. The conditions to be satisfied for drawing a rollover loan are typically less onerous than those for other loans.

A revolving loan is a particularly flexible financing tool as it may be drawn by a borrower by way of straightforward loans, but it is also possible to incorporate different types of financial accommodation within it - for example, it is possible to incorporate a letter of credit, a swingline (that is, a short-term borrowing that is funded on one day's notice), or an overdraft within the terms of a revolving credit loan. This is often achieved by creating a sublimit within the overall loan, allowing a certain amount of the lenders' commitment to be drawn in the form of these different facilities.

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Dormant Account

A checking or money market account is considered Dormant/Inactive if the account has had no deposit or withdrawal activity (other than posting interest) for a period of one year.

 A Certificate of Deposit account is considered Dormant/Inactive if there is no account activity for a period of one year after the first date of renewal.

In other words, An account is declared dormant after a bank or building society has failed in attempts to contact the holder; if letters or statements are returned marked "not known at this address", and if it is unused for an extended period (accounts still being used regularly will generally remain open even if mail is returned).

It varies from bank to bank. Generally, current accounts are often marked "dormant" after a year, but savings accounts can go untouched for between three and five years.

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Merchant Banking

Merchant banking consisted initially of merchants who assisted in financing the transactions of other merchants in addition to their own trade. In France, during seventeenth and eighteenth centuries a merchant banker was not merely a trader but an entrepreneur par excellence. He invested his accumulated profits in all kinds of promising activities. He added banking business to his merchant activities and became a merchant banker.

The origin of merchant banking is to be traced to Italy in late medieval times and France during the seventeenth and eighteenth centuries. 

The Italian merchant bankers introduced into England not only the bill of exchange but also all the institutions and techniques connected with an organised money market.

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Holder in due course

The holder in due course (HDC) theory is a rule in commercial law that protects a purchaser of debt, where the purchaser is assigned the right to receive the debt payments. The theory insulates the purchaser of debt, or other obligation to pay, against charges that either party to the original transaction might have had against the other.

A holder in due course must

1. Be a holder of a negotiable instrument

2. Take it for value

3. Take it in good faith

4. Take it without notice that it is overdue or dishonored, or that the instrument contains an un-authorized signature or an alteration, or that any person has any defense against or claim to it;

5. Take it without reason to question its authenticity due to apparent evidence of forgery, alteration, incompleteness, or other irregularity.

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Banker’s right of set- off

When a customer keeps two or more accounts at the bank, some of which are over drawn and some in credit, the bank has the right to combine such accounts and pay the resultant balance. When certain securities e.g. shares, debentures etc. are in the hands of a banker, he has a right of lien and not set-off.

A banker can exercise right of set-off provided the following conditions are satisfied:

•The amount of the debt must be certain

•The debt must be due and payable

•The accounts must be between the same parties and in the same right

•The debt due must be immediate and not a future debt

•Liability should not be contingent

•There should be no agreement to the contrary

•The banker may exercise this right at his discretion

•The banker has right to exercise this right before a garnishee order is made effective

The right to set-off all accounts arises immediately in the following instances:

•On the death, mental incapacity or insolvency of a customer

•On the insolvency of a firm, or on the liquidation of the company

•On receiving a garnishee order

•On receiving notice if assignment of a customer’s credit balance

•On receiving notice of a second mortgage over security charged to the bank

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Advantages of Automated Teller Machines (ATMs)

1. ATM provides 24 hours service: ATMs provide service round the clock. The customer can withdraw cash up to a certain a limit during any time of the day or night.

2. ATM gives convenience to bank's customers: ATMs provide convenience to the customers. Now-a-days, ATMs are located at convenient places, such as at the air ports, railway stations, etc. and not necessarily at the Bank's premises. It is to be noted that ATMs are installed off-site. (away from bank premises) as well as on site (installed within bank's premises). ATMs provide mobility in banking services for withdrawal.

3. ATM reduces the workload of bank's staff: ATMs reduce the work pressure on bank's staff and avoids queues in bank premises.

4. ATM provides service without any error: ATMs provide service without error. The customer can obtain exact amount. There is no human error as far as ATMs are concerned.

5. ATM is very beneficial for travelers: ATMs are of great help to travelers. They need not carry large amount of cash with them. They can withdraw cash from any city or state, across the country and even from outside the country with the help of ATM.

6. ATM may give customers new currency notes: The customer also gets brand new currency notes from ATMs. In other words, customers do not get soiled notes from ATMs.

7. ATM provides privacy in banking transactions: Most of all, ATMs provide privacy in banking transactions of the customer.

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Law Short Notes on Risk-Weighted Asset

Risk-weighted asset is a bank's assets weighted according to credit risk. Some assets, such as debentures, are assigned a higher risk than others, such as cash or government securities/bonds. Since different types of assets have different risk profiles, weighing assets based on the level of risk associated with them primarily adjusts for assets that are less risky by allowing banks to "discount" lower-risk assets.
This sort of asset calculation is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution, and is regulated by the Local Central Banks or other National financial regulators. The specifics of CAR calculation vary from country to country, but general approaches tend to be similar for countries that apply the Basel Accords. In the most basic application, government debt is allowed a 0% "risk weighting" - that is, they are subtracted from total assets for purposes of calculating the CAR.

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Law Short Notes on Treasury Bills

Treasury Bills issued by the government as an important tool of raising public finance and up to 1994, were of three types, although all of them were 90-day bills. Among these three types, bulk was represented by ad-hoc treasury bills issued to meet the cash balance need of the government. A second type was the 3-months treasury bills on tap introduced in August 1972 and their purpose was to mop up the excess liquidity of banks. 

 
The third type was the 3-months treasury bills introduced for subscription exclusively by the non-bank financial institutions, non-financial enterprises and the public.Initially, a limit of Tk 250 million was set for the issue of such treasury bills. Later this limit was withdrawn and Bangladesh Bank was empowered to issue any amount of treasury bills for the non-bank public. Despite the withdrawal of the limit, the holdings of non-banking sectors remained small and commercial banks comprised the main market for the treasury bills. These bills continued to be reissued in every ninety days. In December 1994, however, treasury bills on tap and the treasury bills for nonbanks were abolished.

The holdings of treasury bills by the deposit money banks generally did not exceed the amount needed to meet the liquidity requirement. A substantial part of the treasury bills issued, therefore, needed to be held by Bangladesh Bank. Of the total Treasury bill holdings, the amount of holdings by the deposit money banks was 57% at the end of 1973 and amidst fluctuation, they came down to 27% at the end of June 1982. Later, the share started to rise and stood at 68% at the end of 1992. Thereafter, it fell sharply and came down to a lowest minimum of 4% at the end of June 1995.

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Law Short Notes on mutual fund

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals). The mutual fund will have a fund manager that trades (buys and sells) the fund's investments in accordance with the fund's investment objective. It is registered in Securities and Exchange Commission.
Mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities.

For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund.

Benefits of mutual funds include diversification and professional money management. Mutual funds offer choice, liquidity, and convenience, but charge fees and often require a minimum investment.

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Law Short Notes on credit card

A credit card is a small plastic card measuring about 85 mm by 54 mm bearing the name, date, computer number and specimen signature of the holder and the validity with raised letters to facilitate machine readability issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. 

The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. Usage of the term "credit card" to imply a credit card account is a metonym.

As per instruction given in the application form or later on in writing, the credit card issuing authority will dispatch the periodic bill to the card holder and realize the bill amount from his account as instructed earlier. In other way, the card holder may pay the periodic bill in cash or by cheque within specific period. If not paid within the grace free specific period, profit or interest or service charge on the bill amount will be charged before full payment of the bill amount.

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