MODES OF LENDING

Secured Advances
The bank secured advances by means of following

forms of securities.

Lien Pledge Mortgage Hypothecation

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;

 1. A right of retaining property belonging to the

debtor. 2. till all dues due to the borrower are cleared.

PLEDGE
A pledge is a contract whereby a good is deposited

with the lender is a security for repayment of loan.

 The delivery of documents of title relating to goods

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.

Characteristics or Features of pledge

The following are the essential features of pledge There must be bailment (delivery) of goods The delivery or goods (bailment) must be by way of security. The security must be for payment of debt

Rights and Duties of a Banker as a pledge

Rights of a Banker: The banker has the following right as a pledgee. Right to retain goods Right to recover extra ordinary expenses Default in payment Right of full value of goods

Duties of a Banker 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.

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.

 The person in whose interest the property is

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: 2.Transfer of interest:
3.Repayment of loan:

4.Return the interest of property:

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.

 The advance of loans against goods without taking

their possession is very risky on two grounds,

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 of the Bank

1. In case of hypothecated goods, the bank has the

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.

 3. The bank has the right to ask the borrower to

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.

 Advances granted under hypothecation are not

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.