Q-1: Define security. Explain the various forms of security for loan. OR Explain the different modes of security advances / lending?
Ans: MODES OF LENDING
The role of the banker as a lender is very important. While sanctioning loan, he secures the loan in one-way or the other. In some cases, the banker advances loans on the credit worthiness of the borrower. In some cases, personal security is coupled with the guarantee of another person. However, in most of the cases, the banker secures the advances by accepting tangible goods as collateral (property pledged as guarantee for repayment of money) securities- The main modes of securing advances are:
(i) Mortgage (ii) Pledge (iii) Lien (iv) Hypothecation
Before explaining these modes we have to know the meaning of security
A security is a right of property given to the creditor. If the debtor fails to repay the debt, then creditor can convert it in to cash. The bankers hold various kinds of securities as a cover for advances to their customers. The rate of securities can be different in various cases. These securities are preferred which can be converted into cash without loss. The main kinds of security are:
(1) Stocks and Shares (2) Title of deeds Life Policies
(3) Bills of Exchange (4) Bills of Sale
(5) Promissory Notes (6) Bullion
The banks also extend credit on the Personal Securities.
FORMS OF SECURITY
Following are the main forms of Security.
Mortgage is a legal assurance given to the creditor. The interest of the property gives to the creditor for meeting an obligation. After the repayment of the debt the property will return to his borrower.
MAIN CONDITIONS FOR MORTGAGE
- If the debtor fails to repay the debt, the creditor can sell the property.
- The possession of the property remains with the borrowers.
- It is only the transfer of an interest in a specific mortgage property. The securities, which are generally mortgaged as a cover for an advance, are title deeds, life policies stock and shares.
A pledge is an actual delivery of the movable property to the lender as a security for a loan. The ownership, however, remains with the borrowers.
DIFFERENCE BETWEEN MORTGAGE AND PLEDGE
The difference is that in case of Mortgage, the possession of property remains in the hand of borrower. In case of Pledge the lender is entitled to the exclusive possession of the property tell the debt is repaid.
A lien is a right to retain property till the debt is repaid; it is a legal claim on the securities, which comes in to the banker hands in the ordinary course of his business.
DIFFERENCE BETWEEN LIEN MORTGAGE AND PLEDGE
The difference between, lien, mortgage and pledge are the lien arises by implication of law from certain situations, while the Mortgage and Pledge arises from special agreements between a borrower and lender,
It can be defined in the following words:
“Legal transaction whereby goods may be mode available as a security for a debt but property will remain in the possession of the borrower”
In this case loan is given to the borrower against goods without taking their passions.
DISADVANTAGES OF HYPOTHECATION
In this case there are two disadvantages.
- i. A borrower may take some goods without informing the bank, because all the goods are in his hand.
- ii. The bank does not have a legal claim because goods are not in his possession.
- iii. Advances against such goods are not safe.
RIGHTS OF THE BORROWER IN CASE OF HYPOTHECATION
- Goods are in the custody of the borrower so he can sell them.
- According the agreement he has a right to keep the ownership of goods.
RIGHTS OF BANKS Hi CASE OF HYPOTHECATION
- It can check the stock in the godown of the hypothecated goods.
- The bank has a right to obtain stop order if contract is being violated.
- If banker feels that the amount of loan, it may ask to maintain the balance.
- It may demand periodic report of the Stock.
- The banker has also the right of insurance of goods.
- The borrower will pay the charges.
Worked to draw out the character of dorothea, and https://essayclick.net nowhere does.
Distinguish between life, marine and fire insurance Next Post:
Various kinds of Mortgage