Government Securities include securities issued by Government from time to time to raise loan. Investment in Government securities is safe and easily realizable. These securities are no subject to wide market fluctuations.
Their prices can be ascertained from quotations appearing in daily papers. These enjoy by far the best credit rating, are supposed to be the soundest of all securities and hence called gilt-edged securities.
There are there forms of Government securities.
- Inscribed Stock
- Bearer Bonds
- Government Promissory Notes
- Other forms of Government Securities
Stock is so-called because the name of the stock holder and the amount of his holdings is “inscribed,” i.e., recorded, in the books kept at public Debt Office (PDO). When stock is held in this form the owner is given a certificate to the effect that he has been registered as the proprietor of a certain amount of government stock.
This certificate is known as Stock certificate. The certificate also indicates the rate of interest and the date form which interest is payable. These certificates are not transferable by endorsement. a special form is prinited and the date from which interest is payable. These certificates are not transferable by endorsement.
A special form is printed on the back of certificate. The title to the stock passes on completion of transfer form and registration of transferee’s name with the public Debt Office. A fresh certificate is thereafter issued in the name of the transferee. Transfers are free from Stamp Duty. The transferee’s and transferor’s are free from Stamp Duty.
The transferee’s and transferor’s signatures on the form of transfer are required to be witnessed. No endorsements are allowed on the certificate itself. The bank does not acquire title unless ht certificates are transferred to its name in the books of ht public Debt Office.
While advancing against inscribed stock, the banker should get the stock transferred to his name as no charge can be claimed by mere deposit of the stock receipt. The inscribed stock as are considered safer than Government promissory notes as the name of the older of stock is registered in the books of the public Debt Office.
A bearer bond certifies that the bearer is entitled to a certain sum specified in Taka on the date indicated, with or without notice, in accordance with the terms of the particular loan to which the bond relates. A bearer bond is the property of the bond by the transferor to the transferee without any formality.
Interest coupons are attached to each bond and payment of interest is made on due dates on presentation of relative coupons at the Public Debt Office or the Treasury or Sub-Treasury at which the bond is registered for payment of interest.
Bearer Bonds are taken as cover by way of pledge and mere possession will give a bearer all rights of a pledge but it is usual to take a memorandum of deposit specifying the terms of their lodgment and usually giving a power of sale on default. The following precautions must be observed:
- The banker must see that on the face of it the bond appears to be in order.
- Half-yearly interest coupons, which have not fallen due, are fund attached and none I missing; otherwise, it this considered not good delivery on the stock exchange if the banker wishes to sell them.
- The duty of collecting interest and the principal when due remains upon the banker so long the bond is in his possession.
- Where bonds are subject to repayment by periodical drawings and coupons are payable by advertisement and no by fixed times, it will be necessary to watch the press for such announcement.
- The quality of easy transferability possessed by bearer bonds demands extra care in their custody. Should the bonds be stolen and negotiated for value to an innocent holder, the banker will have recourse probably against the thief only and might not be able to follow the security further, for in such a case no question of forgery can arise since the bonds require no endorsement.
Both Inscribed Stock and Bearer Bonds are no in operation. Only Government Promissory Notes are in use.
Government Promissory Notes
Government Promissory Notes are issued by the public Debt Office of the Bangladesh Bank on behalf of the Government containing a promise to pay a certain person a specified sum either on a specified date or after certain period subject to the terms and conditions of issue and to pay interest thereon at a certain rate.
The interest is payable half-yearly at the treasury on which the note is enfaced on presentation of note itself. The Government Promissory notes are negotiable instruments.
The title to a promissory note can be transferred by endorsement made in special cages provided on the reverse of the scripts. It can be held singly, jointly or in the alternative form payable to the order of either, or any one or more persons according to the wishes of the holders.
Before granting advance against the security of Government Promissory Notes, a banker should observe the following precautions:
- The borrower should endorse the securities in favor of the bank and deliver the same to the bank with a letter of pledge. Every endorsement must be made clearly and legibly in one of the endorsement cages provided on the reverse side. The endorsement must be written in ink and the signatures must tally.
- If the note is in the joint names, all the persons should endorse in the name of the specific person who applies for loan. The borrower should then endorse it in favor of the bank.
- In case the pronote has already been notified for payment of principal and has matured, a special endorsement of the holder on the back of the script provided at the bottom, is required to be made.
- All endorsements must be regular and in order in every respect and the chain of endorsement must be complete and unbroken. In cases there are large number of endorsements appearing, it is preferable to ask the holder to get it renewed and obtain and fresh pronote, An endorsement in bank is not acceptable. ,
- The note is not torn or mutilated or in any way damaged or defective.
- All Government securities, tendered as securities against advances, must invariably be sent to the Public debt Office to ascertain the following:
- That all previous endorsements are regular and registered with the public Debt Office.
- That the security is not stopped for payment or confiscated.
- That is original and not duplicate thereof.
- There is no alternation in amount.
- That the security is enfaced for payment of interest at the public debt Office.
7. It should be verified that interest has been collected and received up to date.
8. In case the borrower is a limited company, the lending bank should ensure that the power of attorney of the officer endorsing the Government Promissory notes has been registered with Public Debt Office, Treasury or Sub-treasury as the case may be. Similarly, if the borrower is a firm, its constitution and the signatures of the partners should be registered with the public debt Office.
If the concern is owned by a sole proprietor, the bank should verify whether he has given a duly stamped affidavit to the public Debt Office, testifying the he facto that he is the sole proprietor of the firm. Endorsement in such cases should be got certified by the public debt office, before making the advance.
Other forms of Government Securities
The other forms of Government securities are as follows:
- Treasury Bills
- Pratirakkhys Sanchaya Patra/National Savings Certificate
- Postal Saving Certificate
- Prize Bond
Issue of Treasury Bills in one of the means by which the government borrows money for short period. The Bangladesh Bank sells treasury bills whenever considered necessary on behalf of the Government by tender.
A treasury bill is transferable by endorsement like a promissory note and can be sold to any person, firm or corporate body but in view of its short maturity, dealings in this type of security are usually confined to institutional inventory like banks, insurance companies and business firms. There are six types of Treasury bills on different maturities are now in operation.
Pratirakkhya Sanchaya Patra/National Savings Certificate
Amongst the wide range of securities issued by the government under the small savings scheme are Pratirakkhya Sanchaya Patra/National Savings certificate and other similar certificates.
The certificates are issued even is small denomination and yield a return. The certificate can be encased prematurely after an initial lock-up, the rates of interest in such cases vary with the period for which the certificates are held.
Customers sometimes approach banks for small advances against these certificates. Whenever such advances are grantee, they are considered a service to customers rather than a remunerative business in itself. In all the cases, the surrender value of the certificates forms the basis on which the advance is considered.
Before an advance is made on the security of these certificates, an application in the prescribed form has to be taken from the borrower in whose name the certificates stand. The certificates have thereafter to be sent to the relative post office or the issuing authority for transfer to the lending bank’s name.
The bank should grant the advance only after the necessary endorsement by the post office or concerned issuing office has been made on the certificates or new certificates are issued in the name of the bank, if permitted by the rules.
The certificates should also be accompanied by a letter addressed to the post master of the concerned post office or the relative issuing authority, authorizing the bank to encase the certificates at any time.
It may be noted that there are some restrictions on the transfer and surrender of these certificates. Bank offices should acquaint themselves with the relative rules regarding the transfer, pledge, surrender, etc. It is advisable to obtain a copy of such rules for reference before granting an advance against these certificates.
No advance should be allowed against certificates in the name of a minor whether in his name or through his guardian or jointly with a guardian. If in joint names, discharge of all the beneficiaries should be obtained together with a stamped letter signed either and Survivor by all.
After the advance against these certificates is repaid the banks will have to apply to the post office or the authority concerned to re-transfer the certificates to the pledger.
Postal savings certificate
These certificates are issued by the post Offices and are not transferable except with the permission of the Head Postmaster. These certificates are not encashable before one year from the date of their issuer.
During the period of non-encashability the transfer of the certificate is allowed under exceptional circumstances. These are, therefore. Not a good security unless transferred in the bank’s name.
These are negotiable by delivery only and need no endorsement. Hence, the pass from hand to by delivery only. The serial numbers and series are noted carefully as complications may arise on declarations of prizes if series and serials are not carefully recorded in the security delivery letter. These are encahsable form any schedule bank and post office.
While advancing against pledge of Prize Bonds a list of Prize Bonds should be prepared in duplicate and one copy delivered to the borrower against his receipt. A letter should also be obtained to the effect that bank would not be responsible for checking the prize draw list in respect of prize Bonds pledged with the bank.
Semi-Government securities include bonds and debentures issued by bodies like Port Trust, Improvement Trusts, Municipal Corporations, etc. Though not as reliable as Government securities, bankers consider them as quite safe and freely lend against them with proper margin.
The lending bank should, however, enquire about the easy marketability of these securities and the fluctuations in prices during past few years.
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