When the Lender feels

8/7/2019 When the Lender feels

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When the Lender feels, the security provided by the Borrower is not sufficient or it may bedifficult to recover the dues smoothly, the Lender may ask for additional security to be provided

by the Borrower himself or other on behalf of the Borrower. In case if any dispute or failure todischarge the loan by the Borrower, the collateral securities will come in hand to service and

recover the loan/debt.

y Imagine an industry or a business which is availing a loan from a Bank. The Bank will

obviously want to retain some security in order to protect itself in case of default by theborrower. There can be two types of securities which the Bank can demand. The first is

the prime security , which is the assets financed by the Bank. For example , the stock of Raw Material , Finished Products , vehicles, receivebles , factory building , machineries

etc . These are funded by Bank either fully or partly.In addition to these securities , Bank may also ask for some additional securities (mortgage of dwelling house for example)

which is known as Collateral Security . The collateral security is not funded by Bank butremains charged to the Bank till the loan is repaid.Most common collateral security is

land and building but there are many forms like Fixed deposits , Life Policies , Shares of listed companies , third party guarantees etc.Banks do not ask for any collateral security

for small size loans for agriculture , small business etc.o 1 year ago

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Primary Security vis-a-vis Collateral security/personal vis-à-vis third party guarantee

hat is the difference between primary security and collateral security?

security is the asset created out of the credit facility extended to the borrower and / or which are directly associated w

s / project of the borrower for which the credit facility has been extended. Collateral security is any other security offered for

cility. For example, hypothecation of jewellery, mortgage of house, etc.

nder the Scheme, any third party guarantee obtained for the credit facilities will make them ineligibtee cover. What is third party guarantee?

per the extent guidelines no third party guarantee should be obtained if the account is to be covered under the Credit Guara

e. However, in case the constitution of the borrower is proprietary or partnership, the personal guarantee of proprietor/ partn

as third party guarantee. Personal guarantee of directors, were borrower constitution is a company would be treated as thir

guarantee.

Foreclosure is the legal process by which a mortgagee, or other lien holder , usually a lender,obtains a termination of a mortgagor 's equitable right of redemption, either by court order or by

operation of law (after following a specific statutory procedure).[clarification needed ] Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to

secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the borrower the equitable right of redemption if the borrower repays the debt.

While this equitable right exists, it is a cloud on title and the lender cannot be sure that it cansuccessfully repossess the property. Therefore, through the process of foreclosure, the lender

seeks to foreclose the equitable right of redemption and take both legal and equitable title to the



property in fee simple. Other lien holders can also foreclose the owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors' bills or overdue homeowners'

association dues or assessments.

clarification needed ]Usually a lender obtains a security interest from a borrower who mortgages or

pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries torepossess the property, courts of equity can grant the borrower the equitable right of redemptionif the borrower repays the debt. While this equitable right exists, it is a cloud on title and the

lender cannot be sure that it can successfully repossess the property. Therefore, through theprocess of foreclosure, the lender seeks to foreclose the equitable right of redemption and take

both legal and equitable title to the property in fee simple. Other lien holders can also foreclosethe owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors'

bills or overdue homeowners' association dues or assessments.

The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner

has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory

note, secured by a lien on the property. When the process is complete, the lender can sell theproperty and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said

that "the lender has foreclosed its mortgage or lien". If the promissory note was made with arecourse clause then if the sale does not bring enough to pay the existing balance of principal and

fees the mortgagee can file a claim for a deficiency judgment.

Amortgage loan is a loan secured by real property through the use of a mortgage note which

evidences the existence of the loan and the encumbrance of that realty through the granting of amortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most

often used to meanm

ortgage loan.

A home buyer or builder can obtain financing (a loan) either to purchase or secure against theproperty from a financial institution, such as a bank , either directly or indirectly through

intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan,interest rate, method of paying off the loan, and other characteristics can vary considerably.

In many jurisdictions, though not all (Bali, Indonesia being one exception[1]

), it is normal for

home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquidfunds to enable them to purchase property outright. In countries where the demand for home

ownership is highest, strong domestic markets have developed.

The word mortgage is a Law French term meaning "dead pledge," apparently meaning that the

pledge ends (dies) either when the obligation is fulfilled or the property is taken throughforeclosure.

[2]

secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as

collateral for the loan, which then becomes a secured debt owed to the creditor who gives theloan. The debt is thus secured against the collateral ² in the event that the borrower defaults, the



creditor takes possession of the asset used as collateral and may sell it to regain some or all of theamount originally lent to the borrower, for example, foreclosure of a home. From the creditor's

perspective this is a category of debt in which a lender has been granted a portion of the bundleof rights to specified property. If the sale of the collateral does not raise enough money to pay off

the debt, the creditor can often obtain a deficiency judgment against the borrower for the

remaining amount. The opposite of secured debt/loan is unsecured debt, which is not connectedto any specific piece of property and instead the creditor may only satisfy the debt against theborrower rather than the borrower's collateral and the borrower.

Indian banks can not ask for collateral security for loans upto Rs 5 lakh to

Micro and Small Enterprises (MSE) sector

On September 21, 2007 banks were advised,by Reserve bank of India, that they may extend collateral-free loans

upto Rs. 5 lakh, to all new loans sanctioned to the units of MSE sector (both manufacturing and services enterprises)

as defined under MSMED Act, 2006.

Notwithstanding the above, RBI has received representations from various quarters that collateral security is beingdemanded from MSEs even for new loans upto Rs. 5 lakh.

Reserve Bank of India has reiterated on January 20, 2009 that banks may extend collateral-free loans upto Rs. 5 lakh

to all new loans to the MSE sector (both manufacturing and service enterprises).

RBI has clarified that these guidelines are mandatory and banks must not obtain collateral security in the case of

loans upto Rs. 5 lakh extended to all units of the MSE sector.

With a deterioration in the loan portfolio quality of some micro finance institutions, banks have asked MFIs to replace

weak collateral with better-quality assets to hedge the risks. This issue is especially pertinent to loan portfolios inAndhra Pradesh.

An MFI executive explained that while lending to non-bank finance companies, banks seek the booked business(loans to borrowers) as primary security. Customer loans are the only asset as a fallback option.

With a deterioration in the loan portfolio quality of some micro finance institutions, banks have asked MFIs to replaceweak collateral with better-quality assets to hedge the risks. This issue is especially pertinent to loan portfolios inAndhra Pradesh.

An MFI executive explained that while lending to non-bank finance companies, banks seek the booked business(loans to borrowers) as primary security. Customer loans are the only asset as a fallback option.

Agricultural : Collateral security: loans up to Rs. 50, 000, no collateral required, but for above Rs. 50,000, RBI directives are followedvvd

When the Lender feels

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