Types of Securities

There are four types of securities which are as under :-

Lien
Pledge
Mortgage
Hypothecation

1. Lien

Lien is first kind of security which is the right of holdings the goods of the borrower
until the loan is repaid. The borrower remains the owner of the goods but the
possession is given to the lender. The agreement of lien explains whether it relates a
particular debt or debts in general. In ordinary lien creditor has only the right of
possession of goods. He has no right to sell it, but the bankers lien is not the same.
The banker has a right to sell the good after a proper notice. The banker gets the
property of the customer as his banker. Thus papers of money or goods with the
banker are not for the purpose other than lien. The banker takes the possession
lawfully. There must not imply or expressed agreement against lien.

2. Pledge

Pledge is also from one of the types of securities. It can be defined as Bailment of
goods as protection for payment of a money owing or act of a promise. The borrower
is called pledger and the banker is called pledge. In case of pledge there should be
bailment of goods and the bailment should be on behalf of the debtor or an intending
debtor. The delivery of goods is necessary for the contract of bailment. The delivery
may be actual or constructive. The constructive delivery is made when the bailee puts
his lock on the doors of Godowns storing the pledged goods or merely key of the lock
on the Godowns door is received. It is essential that the bailee should return the same
goods to the bailer or dispose them of according to his instructions.

3. Mortgage

Mortgage another type of security which can be defines as A mortgage is the

reassigning of interest in particular fixed property for the reason of protection of
payment of funds advanced by means of loan, an presenting of future balanced due, or
the act of commitment which maybe rise to a financial liability. The transferor may be
known as mortgager. The transferee may be known as mortgagee. The contract is
treated as mortgage deed.

4. Hypothecation

Hypothecation is also from one of the types of securities and can be defines as A lawful
transaction and essential goods are always accessible as security for a balance due
without transferring either the property or the possession to the lender. It is clear that
possession and ownership of the goods remain with the borrower and an equitable
charge is created in favor of the lender. The borrower agrees to give the possession of
the goods to the banker whenever the banker requires him to do so. It is possible when
the transfer of possession is either inconvenient or impracticable. If the borrower offers
raw material or goods in possession as security, the transfer of possession will stop the
functioning of borrowers business. The creditor possesses the right of a pledge under
the hypothecation deed. The position of the banker under hypothecation is not as safe
as under a pledge. If the borrower fails to give the possession of eth goods
hypothecated, the bank can file a suit in the court of law for the recovery of amount lent.
The advances against hypothecation are risky. The bank should make sure that the
party has a good reputation, should check property regularly and asks the hypothecator
to submit periodical reports.

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.

SECURITY FOR BANK ADVANCES/LENDING

A security is an interest or a right in property given to the creditor to convert it into cash
in case the debtor fails to meet the principal and interest on loan. It is an insurance
against unforeseen development and the last avenue through which the bank can get its
money recouped should things turn sour. It provides bankers with succour if every other
things fails. Apparently, good security does not guarantee that loans will not be bad and
neither does its absence impair the chance of success of the investment.
Virtues of a good banking security

A good banking securities therefore must have the following essential attributes.

1. Sufficiency
A good security must be adequate to cover the bank's entire exposure. To be on a safer
side, the value of the pledge security should be 100% or more of the loan seek.

2. Objective and Stable value

A good banking security must be capable of being valued in a relatively objective rather
than sentimental way. And apart from this, its value must not be volatile but stable in
the market.

3. Easily realizable
This attribute has to do with high marketability of the security. This implies that the
pledged assets must be in high demand and easy to be sold off without loss in value.

4. Ease of assignment
The security must be capable of having its title legally passed to the bank with little
problem. It must also be easy for the bank to re-transfer it back to the customer on
liquidation of the debt.

5. Not Onerous
The security must not pose undue liabilities or inconvenience on the bank. For example,
a basket of tomatoes.

6. Prime Asset
At best, security must be the borrower's prime asset i. e an asset that the borrower hold
in high esteem and would not like to lose. Borrowers normally have psychological
attachment to their prime assets hence they will have the urge to liquidate their debt and
take back the asset.

7. Legal binding
The security must be legally water tight so as to make it legally binding and enforceable.

8.Good Title
A good security must have unquestionable title. Registered land without encroachment
and encumbrances obviously have good title
WHAT IS SECURITY?

Security implies something which the creditor could resort to in order to aid him in realizing or
recovering the debt, in case the debtor failed to pay.

Rights Of The Borrower :-

1. Goods are in the custody of the borrower so he can sell them.

2. According the agreement he has a right to keep the ownership of goods.

Rights Of Bank :-
1. It can check the stock in the godown of the hypothecated goods.

2. The bank has a right to obtain stop order if contract is being violated.

3. If banker feels that the value of available goods in the stock is less than the amount
of loan it may ask to maintain the balance.

4. It may demand periodic report of the stock.

5. The banker has also the right of insurance of goods. The charges will be paid by the
borrower.

14 PRECAUTIONS FOR ADVANCES AGAINST SECURITY OF GOODS

1. Integrity of the borrower

The banker should ascertain that the borrower is trustworthy, honest and man
of sufficient experience in his business. Such a precaution is necessary to
avoid fraudulent dealings.
For example,
when a customer offers 100 bags of paddy as security it is impossible to
inspect each and every bag. He has to rely on the honesty of the borrower.
Further he should see whether the borrower has adequate practical
experience in his business.
An experienced businessman is conversant with risks and the profitable areas
of the business. An inexperienced one may incur loss and be a potential risk.
2. Purpose of the loan
The repayment mostly depends upon the purpose for which the loan is
obtained.
To a borrower who is engaged in speculation, the chances of loss are greater.
As such the loss will have to be shared by the banker. So advances should
not be allowed for speculative purposes.
3. Nature of the commodity
The banker should have working knowledge of some of the special features of
the commodities offered as security.
The commodities which could be disposed of easily, the quality of goods
which are not subject to deterioration and price of goods which are almost
steady should be preferred by a banker as security.
4. Knowledge of different markets
A banker should be conversant with the markets for different commodities.
This is essential to regulate the margin for the goods according to the price
prevailing in the market.
Failure to have knowledge of the market will put him at the mercy of the
borrower who may inflate the value to get more advances.
5. Proper care in valuation
The banker should appoint experts to value the goods.
Care should be taken to provide sufficient sale margin to avoid loss resulting
from market fluctuation. In some cases the price mentioned in the bill may be
an inflated one.
So. it is advisable to compare the price which those prices prevailing in the
market. If the goods are packed the banker should insist on a certificate from
reliable packers.
6. Ascertain the title of owner
Before accepting goods as security, the banker should ascertain the title of
the borrower to the goods by inspection of the original invoice or cash memos.
7. Proper storage
The banker should select warehouse which are properly built and safe in
every way for the storage of goods.
The roof and flooring should be situated near the bank so that the banks
representative can have direct and free access to them at any time.
All goods stored in bags or bales should be so arranged as to facilitate
inspection easily.
A careful selection should be made of godown keeper & watchmen. They
should be honest & posses a high sense of responsibility.
8. Rented godown
If the borrower makes use of a rented godown, the bank must obtain an
undertaking from the owner of the building stating that the bank has a prior
lien.
This is necessary because at times the building owner may have a prior claim
for rent due & the position of the banker will be at stake.
9. Insurance up to the full market value
Goods should be insured against all known risks up to their full market value.
The relative insurance policies should be held by the bank.
10. Creation of charge by Pledge and
Hypothecation
A banker may create a charge over the goods either by pledge or
hypothecation. In pledge the goods or title thereto is delivered to the banker.
In hypothecation neither possession nor goods is transferred to the banker. S
o a written undertaking from the borrower should be obtained that the goods
are not charged to any bank and will not be charged till the agreement
continues with the bank.
11. Handling of go down keys
Under no circumstances should the keys of go downs be allowed to pass into
the hands of the borrower.
The keys of the go down should be kept in a strong room under dual control
and taken out at the commencement of the business and received back at the
close of the business.
12. Inspection
Periodical inspection of the go down should be undertaken as to the quantity
and quality of the goods.
The quantity of stock in go down should be tallied with the record in the bank
and with the books of the borrower.
13. Supervision regarding release of goods
When the borrower is allowed to repay the debt in installments, the banker
should release the goods only in proportion to the amount repaid.
It is also possible that the customers may request the banker to release the
amount a part of the goods when they get parties to sell.
14. Reserve bank directives
The Reserve Bank issues directives from the time to time prohibiting
advances against specific goods or stipulating minimum margin against
certain commodities.
The directives may also specify the level up to and conditions on which bank
may grant credit. Bank should follow the conditions in the directives while
lending against goods.
Finally, we can say that these above precautions should be taken by a banker
in case of advances against the security of goods.

Advantages and Disadvantages of a Guarantor Loan

A guarantor loan is one of the soundest loan alternatives for people with no credit history or are
suffering from bad credit. However, that is not to say that there are no negative effects that these
loans can bring. Here, we discuss the advantages and disadvantages of guarantor loans.

Advantages
Cheaper interest rates. With guarantor loans, youll be surprised that the rates are more competitive
than other types of loans, despite of having poor credit. This is because your loan is backed up by
someone with good credit.
Flexible repayment terms. Guarantor loans are well ahead of the competition, especially ahead of
payday loans, because of the flexible payment terms. While you have the choice for a short-term
loan duration, you are not forced into a contract term that you cannot afford. What matters most to
us is your affordability, so you have the freedom to shorten or extend your contract.
Larger borrowing amount. With guarantor loans, you wont be disappointed with small-time loans.
When you need more cash for expensive matters, such as home repairs or vacation, you can borrow
more.

Disadvantages
Guarantor will be required to make payments if the borrower fails. This is one of the most obvious
disadvantage with a guarantor loan. If the borrower fails to pay the loan back, any outstanding
amount will be shouldered by the guarantor. Of course, the lender will try all means to collect
payments from the borrower before attempting to contact the guarantor, but still, unexpected things
may happen and this can be very hassling. If someone asked you to become a loan guarantor, make
sure you know the person very well before you agree.
Can cause credit score problems for both applicant and the guarantor in the event of default. A
guarantor loan can have worse implications other than cash. If the lender fails to collect payments
from both the applicant and the guarantor, their credit ratings will be affected. Of course, this can be
avoided by being timely on payments and being cooperative.
Risk of broken relationships. This is by far one of the ugliest effects of a guarantor loan turned out
bad. If the applicant fails to keep up with their promise, it can cause problems, both financial, mental,
and emotional ones. Relationships can be damaged by broken promises, so before asking someone
to become your guarantor, and even before agreeing to become a guarantor, make sure you know
what you are getting into.
Benefits of Securities Lending
Securities lending is an integral part to short selling. In these
transactions, the lender is compensated in the form of agreed-upon fees
and also has the security returned at the end of the transaction. This
allows the lender to enhance its returns through the receipt of these
fees. The borrower benefits through the possibility of drawing profits by
shorting the securities.
Securities lending is also involved in hedging, arbitrage and fails-driven
borrowing. In all of these scenarios, the benefit to the securities lender
is either to earn a small return on securities currently held in its portfolio
or to possibly meet cash-funding needs.

Stock Secured Loan

A stock secured loan is a loan made by a financial institution that is secured by your stock.
Financial institutions, such as banks, mortgage companies, credit unions and savings institutions
make stock loans. You typically need an account with the institution before you can apply for a
stock loan. The maximum you can borrow against your stock will vary by institution, but is
typically between 50 and 80 percent of the market value of the stock. The lending institution will
hold your stock during the period of the loan, but you are entitled to any dividend payments. The
financial institution may take possession of your stock if you default on your loan.