SECURED ADVANCES

  • Secured advances means loans made on the security of tangible assets like land, building, machine, goods and Documents of Title to goods. Search loans provide absolute safety to a bank by creating a charge on the assets in favor of him.

 

  • Section 5 (i) (n) of the Banking Regulation Act, 1949 comma defines secured advances as ‘ secured loan or advance means a loan or advance made on the security of assets the market value of which is not at any time less than the amount of loan or advance’

 

The definition explains the two essential features of secured advances:

  1. The advance must be made against tangible security.
  2. The market value of the security must not be less than the amount of loan granted.
  • The type of security offered varies from place to place. In big cities like Mumbai, Kolkata and Chennai, Government Bonds and stock exchange securities are offered. In large industrial areas raw materials and finished goods are given as cover for the loan. In addition to the above a banker may also lend against movable property is, book debts, life policies, etc. Securities may be classified as primary security and Collateral security.

Primary security

  • The security deposit it by the borrower himself as cover for the loan is called the primary security. In the banking parlor comma it refers to the assets which have been bought with the help of bank Finance. For instance, machinery has been bought with the help of bank Finance. That machinery constitutes the primary security to the banker. All other securities deposited to cover the same advance are called Collateral securities.

Collateral security

  • The term Collateral security is used in 2 senses. In narrow sense, it refers to the security deposited by third-party to secure advances for the borrower. In a wider sense, it denotes any type of security on which the creditor has personal right of action on the debtor in respect of the advance.
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