Security of Credit .

Definition:

Bank wants the certainty of getting back the loan amount. So, bank takes such step to get back loan amount so that there shouldn't have any problem and this is why bank receive mortgage from expected borrower as certainty of loan. The  immovable & chattel assets that are received by bank as certainty is called Security of Credit.

"Security is what the borrower puts up to guarantee payment of a loan."

(Dictionary of banking & finance)

"Security is meant to be an insurance against an emergency." (Bedi & Hardikar)

" Security means an asset or assets to which a lender can have recourse if the borrower defaults in the loan payment " (Oxford dictionary of business)

At last it's said,  loan or advance made on the security of assets the market value of which isn't any time less than the amount of such loan or advance.

Necessity / Importance / Objectives / Advantages of Security.

Bank wants the certainty of getting back the loan amount. So, bank takes such step to get back loan amount so that there shouldn't have any problem and this is why bank receive mortgage from expected borrower as certainty of loan. The  immovable & chattel assets that are received by bank as certainty is called Security of Credit. The objectives & importance of security of credit are given below with detail :

1. Confirmation of loan recovery :

Bank receives security as confirmation of loan recovery. There is no problem at all to getting back the loan amount even in bankruptcy & great losing of business man that means borrower.

2. Increasing funds flow :

If the assurance of loan recovery is got the bank disburses more loan. As a result, the flows of fund in business is ensured and raised.

3. Development of trade-commerce :

The flows of fund is increased in trade - commerce due to security and that sectors are developed.

4. Industrialization :

The force of industrialization is continued because of providing loan by bank against security in placement & expansion of industry.

5. Advising :

Bank also gives an advice to its clients about which sectors is better for investment or from where more outcome will be gained.

6. Loan security :

Mortgage creates the security of credits recovery. If borrower fails to pay the loan amount then selling that mortgaged properties  bank collects its providing loan amount.

7. Creating the responsibilities of borrower :

keeping security bank provides loan. This is why the borrower feels stress to pay the loan.

8. Free from bad debts :

The uncertainty of getting bank the loan amount is lessen due to prove loan against security that means the possibility of creating bad debts is absent.

At last it is said that, bank receives security or mortgages as  the certainty of getting back the loan amount. Moreover, the credits and advances through mortgage increase so profits as goodwill of bank is raised.