Banking Awareness : Charging of Securities
Earning coin (Wealth creation) is the basic aim of whatever human being. One of the concepts used for wealth creation is “Leveraging”.
What is leveraging ?
Using debt (giving loans) to do farther assets/investments or to growth the provide on investments is called leveraging. Debts may last inwards the nature of ‘Secured’ or ‘Unsecured’. Unsecured debts are costlier together with may non serve the purpose. Hence, nosotros may resort to secured debts that involve offering but about asset/ investment equally security for the loan. The procedure of secured lending is done through Charging of Securities’. A accuse agency an involvement or correct which a lender or creditor obtains inwards the belongings of the company, past times way of safety that the borrower volition pay dorsum the debt.
There are dissimilar modes of charging securities. They are,
- Pledge :
- Pledge is done on moveable goods together with securities. In pledge ownership remains amongst borrower together with possession is transferred to bank.
- Example : Gold loan
- Hypothecation :
- Hypothecation is a accuse on movable assets. Under hypothecation ownership equally good equally possession remains amongst the borrower i.e., neither ownership nor possession is transferred to the bank.
- Example : Car Loan, Bike loan etc.
- Mortgage :
- Mortgage is a accuse on immovable property. Mortgage agency transfer of involvement (right) inwards specific immovable prpoerty past times borrower inwards favour of depository fiscal establishment to secure the loan.
- Example : Home Loan
- Assignment :
- Assignment is transfer of correct or involvement over actionable claims. Assignment is done on unsecured debts.
- Example : LIC Policy, Fixed Deposit.
NPA (Non Performing Assets)
- Non-performing assets also called Non-performing loans, are loans made past times a depository fiscal establishment or finance company, on which repayments or involvement payments are non beingness made on time. Banks normally form out equally non performing assets whatever commercial loans which are to a greater extent than than xc days overdue together with whatever consumer loans which are to a greater extent than than 180 days overdue.
- NPA does non but reverberate badly inwards depository fiscal establishment concern human relationship books, they adversely deport upon the national economy.
How to Identify ?
With final result from 31st March 2004, a Non Performing Asset (NPA) is a loan or an advance where :
Interest together with / or installment of principal stay overdue for a catamenia of to a greater extent than than xc days n repsect of a term loan,
- The concern human relationship remains ‘out of order’ for a catamenia of to a greater extent than than xc days, inwards abide by of an Overdraft / Cash Credit (OD / CC),
- The neb remains overdue for a catamenia of to a greater extent than than xc days inwards the example of bills purchased together with discounted,
- Interest together with / or installment of principal remains overdue for 2 harvest seasons but for a catamenia non exceeding 2 one-half years inwards the example of an advance granted for agricultural purposes, and
- No active transactions inwards the concern human relationship (Cash Credit / Over Draft / EPC / PDFC) for mroe than xc days.
Note : With a sentiment to moving towards international best practices together with to ensure greater transparency, it had been decided to adopt ’90 days’ overdue norm for identification of NPA from the yr ending 31st March 2004.
Classification / Categories of NPA:
Banks are required to form out Non-Performing-Assets farther into the next 3 categories based on the catamenia for which the asset has remained non performing together with the realisability of the dues.
- Sub-standard assets : It is i which has been classified equally NPA for a catamenia non exceeding 12 months.
- Doubtful Assets : It is i which has remained NPA for a catamenia exceeding 12 months.
- Loss Assets : Where loss has been identified past times the bank, internal or external auditor or primal depository fiscal establishment inspectors. But the amount has non been written off, wholly or partly.
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