Cannons of a good Banking Security

Cannons of a good Banking Security

Cannons of a good Banking Security

A bank is one kind of financial institution which deals with money and other monetary instruments and conducts business. Generally, it is said that what a bank does is banking. Banking means the activities undertaken by banks which include personal banking and commercial banking and corporate banking. Economic development of a country is dependent on sound banking.

There exist some cannons which should be considered, by a banker while making secured advances for his safe position are stated below:

  1. The validity of the title of the owner:

When a customer applies for a loan against some security, the banker must ascertain the validity of the title of the borrower. If he gets a defective title, he cannot enforce his against the debtor. The banker must also get the title transferred to him by executing appropriate documents.

  1. Liquidity:

The main feature of secured loan is reliance on security and not on the creditworthiness and financial standing of the borrower. So a banker must consider whether the security offered is easily marketable without loss. He should reefer only liquid assets such as manufactured goods, raw materials.

  1. Free from disabilities:

A banker should disqualify securities crippled with certain disabilities; like party paid up shares, life insurance policy without surrender value and so on. He should see before accepting that the security is free from such disabilities.

  1. Documentation:

Documentation is a salient feature of sound lending. The terms and condition under which the loan is sanctioned and the security accepted are put down in writing and signed by the borrower. Obtaining such agreement is called documentation. Such agreement specifics the rights and liabilities of the banker and the customer. So there is no room for misunderstanding of the terms between both the parties.

  1. Margin:

A margin is a provision for safety maintained by the banker while advancing against securities. • A banker does not lend the full value of the security offered by the borrower. He retains a margin over it

  1. Realization of advance:

If the borrower fails to repay the debt within the time specified, the banker after serving reasonable notice can sell the securities and recover his duties. If the banker is unable to recover the full amount from the sale proceeds, he can file a suit against the borrower for the recovery of the balance within the 3 years from the date of sanction of the advance.

At last, we can say that for the security of banker’s position while making secured advances these above are considered as cannons of good banking security.