NEGATIVE LIEN
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for VIDEO LECTURES OF ASHISH SIR (FOR ALL SCALES) — Bank Promotions.
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Free sample — 8 of 65 rapid-fire Q&A cards.
What is a negative lien in banking?
A negative lien is an undertaking given by a borrower to a bank that they will not create any charge or encumbrance on specified assets without the prior written consent of the bank.
What is the primary purpose of a negative lien in bank lending?
To restrict borrower from creating further charges on assets
How does a negative lien differ from a pledge?
Unlike a pledge, a negative lien does not involve transfer of possession of assets to the bank; it is merely a contractual restriction on the borrower's right to encumber the asset.
Does a negative lien give the bank any ownership right over the asset?
No, it only imposes a restriction on the borrower
Does a negative lien create a legal charge on the asset?
No, a negative lien does not create any legal charge or security interest on the asset; it is only a personal covenant between the borrower and the bank.
What type of undertaking does a borrower sign under a negative lien arrangement?
A letter of undertaking not to encumber assets
In what situations do banks typically obtain a negative lien?
Banks obtain a negative lien when physical possession or formal mortgage of an asset is not feasible, such as with shares held in demat form, intellectual property, or certain immovable properties.
Is a negative lien a legal charge or merely a personal covenant?
It is merely a personal covenant, not a legal charge
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