Types of Securities In Banking are being discussed here.When a bank/Financial institution advances loan to a party, it takes some valuables as security against debts. So, that timely recovery of loan can be assured”.By security we mean a valuable which is handed over to the lender as assurance for recovery of loan in future according to the agreed terms and conditions”.
Main Points of Definition
- A valuable or personal guarantee.
- Demanded by a bank or financial institution.
- Against advancing loan/debt.
- For assuring the recovery of loan/debt.
NEED OF SECURITY:
Keeping of security against loan is a basic principle. It provides assurance and confidence to lender for the recovery of loan. If the borrower does not pay back the amount of loan, the lender (Bank) can recover the amount by selling out the security. So, the bank should not advanced loans without obtaining or getting security. The securities may be in form of shares, debentures, jewellery, goods, documents, insurance policy, land and building etc.
Best Types of Securities In Banking You Must Know
Before accepting any security, the banker evaluates and considers the fact whether the recovery of loan would be possible or certain. There are different kinds of securities, which are different in nature and characteristics.
Some important kinds of securities and their characteristics arc given below.
Kinds of Securities
| Personal
Guarantee |
Guarantee Marketable
Securities |
Documents ofTitle to Goods | Immovable Property | Life Insurance Policy | Miscellaneous Goods |
| Specific | 1
Continuing |
- Personal Guarantee:
Sometimes the borrower does not present a tangible security as collateral against the loan and makes written promise to pay back the amount of loan according to the terms and conditions. It is a personal trust on the borrower. This kind of guarantee is accepted for overdraft and cash credit generally.
- Guarantee:
If borrower’s own promise is considered insufficient, the banker may demand another person’s guarantee who gives surety for the payment of loan. The person who gives surety is known as guarantor.
According to some experts:
’’Guarantee is a contract to discharge liability of a third person, in case he becomes defaulter”.
Guarantee may be of two types:
- Specific Guarantee:
This kind of Guarantee is provided for the payment of a particular loan only.
- Continuing Guarantee:
In this kind of guarantee the guarantor promises to pay all the loans taken by the borrower from time to time.
PARTIES IN A GUARANTEE
There are three parties in a Guarantee.
Parties in a Guarantee
Debtor
Creditor
Guarantor
- Debtor:
He is the person who takes loan from the bank.
, 2. Creditor:
The bank that provides loan to the borrower and accepts guarantee.
/ 3. Guarantor:
The person or body who gives guarantee to lender for the repayment of loan.
