Charge for Loans and Advances:
Charge
means to create legal right over the tangible property of the borrowers. This depends
on the following:
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> Nature of borrower
> Type of the property /security
> Nature of loan
> Type of control to be establish for the bank
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Lien:
It
is the right to retain property in possession,
which belongs to another till the debt is repaid. Lien gives a person only a
right to retain the possession of the goods and not the power to sell unless
such a right is expressly conferred by the statute or by custom or usage.
Pledge:
Pledge
is the Bailment of goods as security for
payment of a debt or performance of a promise. In case of pledge, Possession & control of goods remain with Bank but
ownership remains with the borrower. Only movable goods can be
pledged.
Hypothecation:
Hypothecation creates equitable charges on the moveable property
which is taken as security against a debt without holding the actual
possession. In
case of hypothecation, Possession, control ownership remains with the borrower.
Though hypothecation provides the right to that the bank can take the original
possession of the hypothecated goods in case of
default of the borrower.
Mortgage:
A mortgage is a transfer of an interest in land form the owner to the mortgage
lender; on the condition that this interest will be returned to the
owner when the terms of the mortgage have been satisfied or performed otherwise
the lender can liquidate the property to adjust the debt. It is a security
interest in real property held by a lender as a security for a debt. A mortgage
in itself is not a debt; it is the lender’s security for a debt.
Assignment:
An
assignment means transfer of an existing or future
right, property or debt by one person to another person. This is a
method of charging under which borrower may assign any of his rights,
properties or debts to the banker to secure a loan from the latter.
Assignments
may be two types. These are i). Legal Assignments & ii). Equitable
Assignments.
In Banking business, a borrower may assign to
the banker i). The book debts ii). Money due from Govt. department or semi
Govt. organization and iii). Life insurance policies
Negative Lien:.
The
borrowers sometimes have non-encumbrance assets, which are not charged, to the
bank as security. The borrower is thus free to deal with these assets and may
even sell them if he desires. To restrict this right of the borrower, bank may
sometimes request him to give an undertaking to the
effect that he will neither create any encumbrance on these assets nor sell
without prior permission of the bank till advance continues. This
type of undertaking or assurance is term as negative lien.
Set off:
Set off is the
right of combining of accounts between a
debtor and a creditor so as to arrive at a net balance payable to one or the
other. The bank can apply the right of set off if the following conditions are
occurred:
- The customer holds both the accounts in the same capacity
- The repayment of debt is due, and.
- The liability of the borrower is for a sum which is certain,
Set off in relation to Bank means
the right to apply the credit balance in
customer’s account towards liquidation of
debit balance in another account of customer provided both the accounts are
maintained by him in the same capacity.
The right may not be considered as absolute
and the bank may be required to give a notice for exercising his right of set
off. The right of set off should, however, not be exercised arbitrarily and a
notice for combining the accounts must invariably be served by the bank on the
customer.
Letter of Comfort;
A
letter of comfort is document that is drafted by a parent organization and
provided to a lending institution as proof that the parents is aware of and
supports the efforts of a subsidiary to secure financing for some upcoming
project. The intent of the letter is to reassure lenders that the financial
records of the subsidiary are in order, and to affirm the financial ability of
the borrower to honor all terms and conditions associated with the requested
loan.
Fixed Charge: A charge is said
to be fixed if it is made especially to cover definite and ascertained assets
of permanent nature.
Floating Charge: It is a charge
on a property that is constantly changing. Floating charges over cash and stock-in-trade.
Pari-passu Charge: Pari passu
charge means when more than one creditor has a charge on the same property
though ceated at different times, if they agree among themselves, their charge
will rank equal in enforcement. It is generally practiced in case of
syndication lending where the lenders get preference proportioned with their
participation.