Professional Documents
Culture Documents
8 - Modes of Lending
8 - Modes of Lending
Secured Advances
The bank secured advances by means of following
forms of securities.
LIEN
What is bankers Lien? A lien is the right to retain property in its possession
till its bankers dues are cleared by the borrower. Lien gives banker only a right to retain the possession of the goods and not the power to sell. Thus lien is;
PLEDGE
A pledge is a contract whereby a good is deposited
with the lender is a security for repayment of loan. The delivery of goods may be made by transferring the goods from the owners godown to the bankers godown or the keys of the owners godown be handed over to the lender.
also creates a valid pledge. The person delivering the goods as security is called PLEDGER, the person to whom the goods is delivered is known as PLEDGEE.
A pledgee is required to take responsible care of goods pledge with him. The pledgee or any one else is not authorized to make use of goods pledge with him. The pledgee is required to return the goods pledged after the full payment of debt.
contract is required in case of lien. 2. pledge is not terminated by the return of goods to owner for limited purpose. Right of lien is lost with the loss of possession of goods. 3. pledge has right to sue, right of sale and right of lien. But lien-holder can only hold goods till payment is made. He cannot go the court of law.
MORTGAGE
What is mortgage? A mortgage is the transfer of an interest in a specific
immovable property for the purpose of securing the money advanced by way of loan, an existing or future debt.
transferred is known as mortgagee. The person who transfer an interest in property against a debt is called mortgagor.
Features of mortgage
1. Specific immovable property: As a security against debt, only specific immovable
property as accepted as a mortgage. 2.Transfer of interest: There is transfer of interest in the property by the mortgagor for the loan raised or to be raised.
of the loan failing which he forfeits the claim over his mortgaged property. 4. Return the interest of property: On the repayment of loan by the mortgagor the mortgagee is under obligation to return the interest of the property to the mortgagor.
HYPOTHECATION
Hypothecation is mortgage of movable. It is defined as legal transaction whereby goods
(movables) may be made available as security for a debt without transferring the property or the possession to the lender.
One as the goods are in the possession of the owner, the borrower may take out the goods without informing the bank. Secondly, the bank does not have a legal claim as it does not have a valid charge over the goods.
right to inspect the godowns. It can also demand periodic report of the stock. 2. The hypothecated goods are to be insured by the borrower. In case these are not insured the bank has the right to get them insured and recover the insurance charges from the borrower.
maintain a balance of goods which in value is not less than the amount advanced to him. 4. In case the bank finds that the contract is being violated. It has the right to obtain stop order from the appropriate authority.
Rights of Borrower
1. The borrower as per agreement, has the right to
keep the ownership and possession of the goods with him. 2. Since the hypothecated goods are in custody of the borrower, he can dispose them of.
secure from safety point of view. The bank should make sure the party has a good reputation, check property regularly, ask the hypothecator to submit periodic report.
Summary
1. The term mortgage, in strict sense, is used only
in connection with immovable. 2. The terms pledge and hypothecation are generally used in case of movables. 3. Where a mortgage of movable is created by delivery of possession of goods it is known as a pledge and where no possession is given it is called hypothecation.