JAIIB · PPB

TYPES OF COLLATERAL & TYPES OF CHARGES

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.

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What is collateral security in the context of bank lending?

Collateral security is an additional security offered by a borrower to a bank over and above the primary security, to provide the bank with a fallback in case of default.

What is the meaning of the term 'charge' in the context of bank lending?

A right created over an asset to secure repayment of a debt.

What is the difference between primary security and collateral security?

Primary security is the asset created from the loan proceeds (e.g., machinery purchased with term loan), while collateral security is additional security like land or a third-party guarantee pledged separately.

What is a fixed charge in the context of lending?

A charge attached to specific identified assets of the borrower.

What type of charge is created when a borrower transfers possession of goods to the bank as security?

A pledge is created when a borrower transfers actual possession of movable goods to the bank as security, giving the bank the right to sell the goods on default.

What is the difference between a legal mortgage and an equitable mortgage?

Legal mortgage is registered; equitable mortgage by deposit of title deeds.

How does a hypothecation differ from a pledge?

In hypothecation, possession of the asset remains with the borrower while the charge is created in favour of the bank, whereas in pledge the actual possession is transferred to the bank.

Under which Act is hypothecation as a charge recognized in India?

SARFAESI Act, 2002 and other lending-related statutes.

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