When the Lender feels, the security provided by the Borrower is not sufficient or it may be

difficult to recover the dues smoothly, the Lender may ask for additional security to be provided
by the Borrower himself or other on behalf of the Borrower. In case if any dispute or failure to
discharge the loan by the Borrower, the collateral securities will come in hand to service and
recover the loan/debt.

 Imagine an industry or a business which is availing a loan from a Bank. The Bank will
obviously want to retain some security in order to protect itself in case of default by the
borrower. There can be two types of securities which the Bank can demand. The first is
the prime security , which is the assets financed by the Bank. For example , the stock of
Raw Material , Finished Products , vehicles, receivebles , factory building , machineries
etc . These are funded by Bank either fully or partly.In addition to these securities , Bank
may also ask for some additional securities (mortgage of dwelling house for example)
which is known as Collateral Security . The collateral security is not funded by Bank but
remains charged to the Bank till the loan is repaid.Most common collateral security is
land and building but there are many forms like Fixed deposits , Life Policies , Shares of
listed companies , third party guarantees etc.Banks do not ask for any collateral security
for small size loans for agriculture , small business etc.
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Primary Security vis-a-vis Collateral security/personal vis-à-vis third party guarantee

    What is the difference between primary security and collateral security?

mary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the
siness / project of the borrower for which the credit facility has been extended. Collateral security is any other security offered for the said
edit facility. For example, hypothecation of jewellery, mortgage of house, etc.

    Under the Scheme, any third party guarantee obtained for the credit facilities will make them ineligible for
uarantee cover. What is third party guarantee?

As per the extent guidelines no third party guarantee should be obtained if the account is to be covered under the Credit Guarantee
cheme. However, in case the constitution of the borrower is proprietary or partnership, the personal guarantee of proprietor/ partner is not
eated as third party guarantee. Personal guarantee of directors, were borrower constitution is a company would be treated as third party
guarantee.

Foreclosure is the legal process by which a mortgagee, or other lien holder, usually a lender,
obtains a termination of a mortgagor's equitable right of redemption, either by court order or by
operation of law (after following a specific statutory procedure).[clarification needed] Usually a lender
obtains a security interest from a borrower who mortgages or pledges an asset like a house to
secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of
equity can grant the borrower the equitable right of redemption if the borrower repays the debt.
While this equitable right exists, it is a cloud on title and the lender cannot be sure that it can
successfully repossess the property. Therefore, through the process of foreclosure, the lender
seeks to foreclose the equitable right of redemption and take both legal and equitable title to the
property in fee simple. Other lien holders can also foreclose the owner's right of redemption for
other debts, such as for overdue taxes, unpaid contractors' bills or overdue homeowners'
association dues or assessments.
clarification needed]
Usually a lender obtains a security interest from a borrower who mortgages or
pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to
repossess the property, courts of equity can grant the borrower the equitable right of redemption
if the borrower repays the debt. While this equitable right exists, it is a cloud on title and the
lender cannot be sure that it can successfully repossess the property. Therefore, through the
process of foreclosure, the lender seeks to foreclose the equitable right of redemption and take
both legal and equitable title to the property in fee simple. Other lien holders can also foreclose
the owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors'
bills or overdue homeowners' association dues or assessments.

The foreclosure process as applied to residential mortgage loans is a bank or other secured
creditor selling or repossessing a parcel of real property (immovable property) after the owner
has failed to comply with an agreement between the lender and borrower called a "mortgage" or
"deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory
note, secured by a lien on the property. When the process is complete, the lender can sell the
property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said
that "the lender has foreclosed its mortgage or lien". If the promissory note was made with a
recourse clause then if the sale does not bring enough to pay the existing balance of principal and
fees the mortgagee can file a claim for a deficiency judgment.

A mortgage loan is a loan secured by real property through the use of a mortgage note which
evidences the existence of the loan and the encumbrance of that realty through the granting of a
mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most
often used to mean mortgage loan.

A home buyer or builder can obtain financing (a loan) either to purchase or secure against the
property from a financial institution, such as a bank, either directly or indirectly through
intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan,
interest rate, method of paying off the loan, and other characteristics can vary considerably.

In many jurisdictions, though not all (Bali, Indonesia being one exception[1]), it is normal for
home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid
funds to enable them to purchase property outright. In countries where the demand for home
ownership is highest, strong domestic markets have developed.

The word mortgage is a Law French term meaning "dead pledge," apparently meaning that the
pledge ends (dies) either when the obligation is fulfilled or the property is taken through
foreclosure.[2]

secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as
collateral for the loan, which then becomes a secured debt owed to the creditor who gives the
loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the
creditor takes possession of the asset used as collateral and may sell it to regain some or all of the
amount originally lent to the borrower, for example, foreclosure of a home. From the creditor's
perspective this is a category of debt in which a lender has been granted a portion of the bundle
of rights to specified property. If the sale of the collateral does not raise enough money to pay off
the debt, the creditor can often obtain a deficiency judgment against the borrower for the
remaining amount. The opposite of secured debt/loan is unsecured debt, which is not connected
to any specific piece of property and instead the creditor may only satisfy the debt against the
borrower rather than the borrower's collateral and the borrower.

Indian banks can not ask for collateral security for loans upto Rs 5 lakh to
Micro and Small Enterprises (MSE) sector

On September 21, 2007 banks were advised,by Reserve bank of India, that they may extend collateral-
free loans upto Rs. 5 lakh, to all new loans sanctioned to the units of MSE sector (both manufacturing and
services enterprises) as defined under MSMED Act, 2006.

Notwithstanding the above, RBI has received representations from various quarters that collateral security
is being demanded from MSEs even for new loans upto Rs. 5 lakh.

Reserve Bank of India has reiterated on January 20, 2009 that banks may extend collateral-free loans
upto Rs. 5 lakh to all new loans to the MSE sector (both manufacturing and service enterprises).

RBI has clarified that these guidelines are mandatory and banks must not obtain collateral security in the
case of loans upto Rs. 5 lakh extended to all units of the MSE sector.

With a deterioration in the loan portfolio quality of some micro finance institutions, banks have asked MFIs to replace
weak collateral with better-quality assets to hedge the risks. This issue is especially pertinent to loan portfolios in
Andhra Pradesh.

An MFI executive explained that while lending to non-bank finance companies, banks seek the booked business
(loans to borrowers) as primary security. Customer loans are the only asset as a fallback option.

With a deterioration in the loan portfolio quality of some micro finance institutions, banks have asked MFIs to replace
weak collateral with better-quality assets to hedge the risks. This issue is especially pertinent to loan portfolios in
Andhra Pradesh.

An MFI executive explained that while lending to non-bank finance companies, banks seek the booked business
(loans to borrowers) as primary security. Customer loans are the only asset as a fallback option.

Agricultural : Collateral security: loans up to Rs. 50, 000, no collateral required, but for above Rs. 50,
000, RBI directives are followedvvd