Types of Charges in Banking: JAIIB PPB Complete Guide (2026)

Types of charges in banking decide how a bank secures every loan it gives. For any JAIIB PPB aspirant. This is one of the highest-scoring and most-tested areas of Module B.

Master it once. And you lock in easy marks plus real-world banking clarity. This 2026 guide breaks down each charge with simple language.

Clear tables, and exam-focused tips.

We cover everything from the concept of security to the registration of charges under the Companies Act. Every definition is exam-ready. Every difference is revision-ready. Let us begin.

Why Understanding Types of Charges Matters

Banks lend public money. So they cannot lend on trust alone. They create a charge on the borrower's asset as a safety net. If the borrower defaults, the bank can recover dues from that asset.

This is the core of secured lending. It reduces credit risk, improves recovery, and strengthens the bank's control. For JAIIB PPB, examiners love testing the fine line between each charge. A small confusion can cost easy marks.

Concept of Security and Purpose of Creating a Charge

Security is an asset that a borrower offers to the lender to back a loan. It assures the bank that money will come back. One way or another.

The bank "creates a charge" to legally tie that asset to the loan. The main purposes are simple and worth memorising:

• Reduce the bank's credit risk on the advance.
• Ensure smooth loan recovery on default.
• Give the bank a legal claim that beats unsecured lenders.
• Strengthen the bank's financial control over the borrower.

Meaning of Charge and Its Legal Basis

A charge is an interest or right created by the borrower in favour of the bank. It is created over movable or immovable assets. It can arise from an agreement, or by operation of law.

The legal foundation comes mainly from three laws. Remember these three for the exam:

• Indian Contract Act, 1872 (pledge, bailment, indemnity).
• Transfer of Property Act, 1882 (mortgage of immovable property).
• Companies Act, 2013 (registration of company charges).

Primary Security vs Collateral Security

This pair is a classic one-mark question. Keep the difference crisp.

• Primary Security: The main asset created or financed by the loan. Example: the goods bought, or the house being purchased.
• Collateral Security: An extra. Secondary asset offered to give the bank added comfort. Example: a separate fixed deposit or another property.

In short: primary is the asset the loan funds. Collateral is the back-up cushion. Sharpen this concept with our mock tests.

Overview: The Main Types of Charges

Before the deep dive, here is the full map. The major types of charges a banker creates are:

• Pledge (movable goods, possession with bank)
• Hypothecation (movable goods, possession with borrower)
• Mortgage (immovable property)
• Assignment (actionable claims like book debts, insurance policies)
• Lien and Set-off (bank's protective rights)
• Fixed and Floating charges (company assets)

Pledge: Definition and Essentials

A pledge is the bailment of goods as security for a debt or a promise. It is defined under the Indian Contract Act, 1872. The person who pledges is the pledgor; the bank is the pledgee.

The key idea: ownership stays with the borrower. But possession goes to the bank. Think of gold-loan jewellery kept in the bank's vault.

Essentials of a Valid Pledge

• Delivery of possession, actual or constructive.
• An existing debt or a promise to perform.
• The pledgee's right to sell on default, after due notice.

Rights and Duties of the Pledgee (Bank)

• Right to retain the goods until full repayment.
• Right to sell the goods on default, after reasonable notice.
• Duty to take reasonable care of the pledged goods.
• Duty to return the goods once the debt is cleared.

Hypothecation: Meaning and Features

Hypothecation is a charge on movable assets where possession stays with the borrower. Only the charge moves to the bank. It is widely used for vehicle loans, stock, and machinery finance.

Because the borrower keeps the goods. Hypothecation is riskier for the bank than a pledge. Strong documentation and inspection become vital. Key features:

• Borrower keeps possession of the goods.
• Only a charge is created in the bank's favour.
• It needs proper documentation and, for companies, registration.
• On default, the bank first takes possession, then sells.

Difference Between Pledge and Hypothecation

Mortgage: Definition and Types

Under Section 58 of the Transfer of Property Act. 1882, a mortgage is the transfer of an interest in specific immovable property. The purpose is to secure money advanced. Or to be advanced, as a loan.

So mortgage always deals with immovable property. Such as land or a house. This single point separates it from pledge and hypothecation.

Major Types of Mortgage

1. Simple Mortgage (personal covenant, registered deed)
2. Mortgage by Conditional Sale
3. Usufructuary Mortgage (lender enjoys rents/profits)
4. English Mortgage
5. Mortgage by Deposit of Title Deeds (Equitable Mortgage)
6. Anomalous Mortgage (a mix of the above)

Simple Mortgage vs Equitable Mortgage

• Simple mortgage involves a personal covenant and a registered deed.
• Equitable mortgage is created by depositing title deeds, often without registration.
• Equitable mortgage is popular in notified towns for faster, cheaper processing.

Assignment: Meaning and Types

Assignment means transferring an actionable claim from one person to another. The transferor is the assignor; the receiver is the assignee. Common examples are book debts and life insurance policies.

Banks often take assignment of a borrower's receivables or LIC policy as security. There are two broad types:

• Legal Assignment: All formalities are met, giving the assignee full legal rights.
• Equitable Assignment: Some formality is missing, yet it stays valid under equity.

Lien and Set-off: The Bank's Protective Rights

Beyond the four charges, banks have two more tools. These often appear as tricky MCQs.

• Lien: The right to retain a borrower's goods or securities already in the bank's possession until dues are paid.
• Set-off: The right to combine a customer's accounts. Adjust a credit balance against a debit balance.

Banks also enjoy a general lien under the law. Which is wider than an ordinary lien. Always confirm the exact scope on the latest official IIBF notification before relying on figures.

Fixed Charge vs Floating Charge

When the borrower is a company, charges are classified further. This is a favourite JAIIB PPB concept.

• Fixed charge: Attached to a specific. Identifiable asset, such as a particular building or machine.
• Floating charge: Hovers over a changing pool of assets. Such as stock-in-trade, until it "crystallises".

A floating charge becomes a fixed charge (crystallises) on events like default or winding up.

Comparison: Pledge vs Hypothecation vs Mortgage vs Assignment

Registration of Charges Under the Companies Act

When a company creates a charge. It must register it with the Registrar of Companies (ROC). This duty flows from Section 77 of the Companies Act, 2013.

The reason is critical. An unregistered charge can become void against the liquidator and other creditors. So the bank may lose its priority. Key points to remember:

• The charge must be filed within the prescribed time limit.
• Fixed and floating charges both need proper documentation and stamping.
• Late filing may be allowed with extra fees, subject to current rules.
• Always confirm exact timelines on the latest official IIBF notification or MCA rules.

How to Study Types of Charges for JAIIB PPB

Theory alone will not crack PPB. Use a smart, layered method instead.

1. Learn definitions first. Nail the one-line meaning of each charge.
2. Anchor on possession. It instantly separates pledge, hypothecation, and mortgage.
3. Tie each charge to a law. Contract Act, TPA, Companies Act.
4. Convert notes into tables. Tables stick better during revision.
5. Solve PYQs and MCQs. Apply concepts under exam pressure with our mock tests.

For deeper revision, browse more free guides on PPB Module B topics.

Common Mistakes Students Make

Avoid these traps that quietly cost marks every season:

• Confusing possession. Pledge means possession with the bank, not the borrower.
• Mixing asset types. Mortgage is immovable; pledge and hypothecation are movable.
• Ignoring registration. Forgetting that an unregistered company charge can be void.
• Skipping lien and set-off. These small topics return as surprise MCQs.
• Memorising blindly. Understand the logic, do not just cram terms.

Frequently Asked Questions (FAQ)

What are the main types of charges in banking?

The main types of charges are Pledge, Hypothecation, Mortgage, and Assignment. Banks also use Lien and Set-off as protective rights. Plus Fixed and Floating charges for companies.

What is the difference between pledge and hypothecation?

In a pledge, the bank holds possession of the goods. In hypothecation. The borrower keeps possession while only the charge passes to the bank. A gold loan is a pledge; a vehicle loan is hypothecation.

Which law governs mortgage of immovable property?

Mortgage is governed by Section 58 of the Transfer of Property Act, 1882. It defines mortgage as the transfer of an interest in specific immovable property to secure a loan.

Why must a company register a charge?

Under Section 77 of the Companies Act. 2013, a charge must be registered with the ROC. If not registered. It can become void against the liquidator and other creditors. Weakening the bank's claim.

Is this topic important for the JAIIB PPB exam?

Yes. Types of charges is a high-frequency, high-scoring area in PPB Module B. Clear concepts here help you answer both direct. Tricky application-based questions with confidence.

Final Words: Turn Charges Into Easy Marks

Types of charges looks heavy at first. But once you anchor on possession. Asset type, and the governing law, it becomes simple and scoring. These same concepts also make you a sharper banker on the job.

Revise the tables, solve plenty of MCQs, and stay consistent. With clear basics and steady practice. This chapter can become one of your strongest in JAIIB PPB. Keep going, you are closer than you think.

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