CA Sansaar
Bank Audit - Modes of Creating Charges on Securities | Mortgage | Hypothecation | Pledge | Lien etc.
PrintTypes of Charges over Securities in a Bank Loan / Advances.
Nature of Securities
Security can be in any form i.e. tangible or intangible, movable or immovable. Further, it is classified into two types namely, primary and collateral securities.
Primary and Collateral Securities
Primary security is the principal security for an advance. Collateral security is an additional security.
Mode of Creation of Securities
Depending on the nature of the advance, creation of security may be in the form of a mortgage, pledge, hypothecation, assignment, set-off, or lien.
Mortgage – to immovable property (Attach to Earth), Possession with Borrower, e.g. (Home, P&M)
Hypothecation – to movable property, Possession with Borrower (Like Car Loan, Bike Loan, inventory goods)
Pledge – to movable property, Possession with lender (like Gold Loan, share, nsc, nss)
Assignment represents a transfer of an existing or future debt, right or property belonging to a person in favour of another person (book debts and life insurance policies)
Set-off the right of set-off enables a bank to combine two accounts (a deposit account and a loan account) of the same person.
lien is creation of a legal charge with the owner’s consent, which gives the lender a legal right to seize and dispose / liquidate the asset under lien.
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