security advance for bank

1. Securities for bank advances
Submitted to:- Submitted By:-
Mr.Parvesh Kumar Sumit (14104024)
MBA Deptt.
finance Vivek (14104025)

2. General Principles For Issuing
Secured Advances
The major portion of a bank’s income is earned from
interest and discount of funds lent by him. It is the
most profitable employment of its funds.
The general principles of sound lending by a banker
are safety of loans, liquidity, profitability and the
purpose of the loan extended.

3. General Principles
• Reasonable margin
• Marketability of securities
• Documentation
• Realization of the advances
• Integrity

4. Types Of Security
1. Advances against Goods.
2. Advances against Document Of Title To Goods.
3. Advances against Stock Exchange Security.
4. Advances against Life Insurance Policies.
5. Advances against Fixed Deposit Receipt.
6. Advances against Real Estate.
7. Advances against Book Debts.

5. Risk In Case Of Advances Against
Documents
• Greater Risks Of Frauds And
Dishonesty
• No Negotiable Documents
• Obtaining Wrongful Delivery

6. Precaution To Be Taken In Advancing
Against Goods
i. The bank should accept goods as security from such
parties as are trust-worthy and credit-worthy.
ii. The bank should accept such commodity as security
which are easily marketable.
iii. The bank should make proper enquiries from the
market while accepting a commodity as security.
iv. The bank should make itself certain that the borrower
is the real owner of the goods beings pledged with it.
v. The bank should take the delivery of the commodities
offered as security by actual delivery or constructive
delivery depending upon the integrity of the borrower.

7. Precaution To Be Taken In Advancing
Against Document Title
i. In order to avoid risks of fraud and dishonesty, the banker
should accept such documents as security from honest,
reliable and trusted parties only.
ii. Special care should be taken to see that documents are
genuine and not forged ones.
iii. The good must be insured for its full value against the risks
of fire, theft, etc.
iv. The banker should also take memorandum of charge from
the borrower authorizing the banker to sell the goods if the
borrower defaults in making payment.
v. It also essential that the issuer of the document of title to
goods, i.e., transporter, warehouseman etc.

8. Making Advancing Against Stock
Exchange Security
Stock exchange include all security that are dealt
with on the Stock exchange. In particular, they
include:-
I. Central and state govt. securities
II. Semi-government securities
III. Share of joint stock companies
IV. Debentures of joint stock companies.

9. Life Insurance Policy As Security For
Advance
A life policy is a contracted entered into between a
certain person and the insurance company. Under the
contract, the insurance company, in the return for
payment of premium for a fixed number of year or
throughout life of the insured person, undertaken to
pay a certain sum either on the death of the insured or
after the expiry of the fixed period.

10. Precautions Of Life Insurance
Policy
• The policy should be examined for any conditions imposed on
the assured, by reason of which the security may not be as
strong as desired.
• It must be insured that the person claiming under insurance
policy must have an insurable interest in the life assured, and
such interest existed at the time the policy was effected .
• Standing instructions should be obtained from the customer for
the periodical payment of the premium to the debit of his
account.
• It is essential that the age of the assured person should have
been admitted by the insurer.

11. Advances Against Fixed Deposit
Recepits
• A fixed deposit receipt issued by the same bank is the safest
security for granting an advance, because the receipt
represents a debt due from banker himself.
• The banker should normally advance a loan to the same
person or persons in whose name /names the receipt is
issued.
• If the receipt stands in the name of a minor, the banker
should not grant a loan for reasons.
• On the date of maturity of the receipt, the banker adjusts the
loan by the amount refundable to the customer.

12. Advances Against Book Debts
Book debts are the amounts which a concern has
to receive in respect of credit sales made by it
to its customers.
The book debts, as security, are advantageous as
they are self liquidity.

13. Precautions Of Book debts
• The honesty and integrity of the borrower should be of a high
order.
• The bank should gather credit report on the customer’s
debtors.
• The deed of assignment should be executed by the borrower.
• The bank debts should normally not be more than 3 to 6
months old and should be recoverable. Only trade debts are to
be accepted.
• An undertaking should be taken from the customer to pay , any
amount received by him from debtors ,to the bank.

14. Advances Against Real Estates
• Real asset include such tangible assets like
land, building societies advance loans against
such assets.
• Bankers accepts them as security only in
exceptional cases i.e, when the customer has
no other security to offer.

15. Precautions Of Real Estates
• The banker must verify the title of customer.
• The estate should be non-encumbered.
• The banker should take an expert’s valuation
and search report to ensure that the property
has not been dealt with in any way.

16. Advances Against Government
Security
• The deposit of securities must be accompanies by a
memorandum of deposit.
• The borrower should endorse the securities in the bank’s
favour.
• The securities should be enfaced for payment at the local
public Debts Office of the RBI, or at a districts treasury or
sub-tressury , as the case may be.
• In case the bank has granted a large limit against Govt.
promissory notes, it is advisable to keep the securities in the
marketable lots of say Rs.25,000 each.