Confusion regarding bank recovery

The word Collateral is used many a times during the loan application process. Collateral means Security. Property Collateral means the property pledged with the bank as security against the loan borrowed.

When it comes to taking a loan, there are many attributes attached to the property offered as Collateral which needs to be complied with as per the loan industry benchmarks. Having a fair idea about these guidelines ensures a fair & secure transaction.in your case Mr. B has not given any collatural property. It would be applicable only to Mr.A loan.

Thanks for the valuable reply. 

You mean to say that what bank did was right ? 

Another query that I have is that if bank asked for collateral to Mr. A when he applied for the loan, why didn't it ask for a collateral to Mr. B when he applied for it ? Shouldn't the norms be same for both?

In the instant case, it is not clear as to what nature of credit has been provided to each of the brother’s pvt. Ltd Company, as in case of Mr.A collateral was stipulated, but in case of the other brother B, the same security was not a stipulation by the Bank. Such is possible if the nature of the credit  extension are different.

However, while extending credit to the brothers, the Bank should have taken the property as collateral security to cover both the credits extended to the brother’s companies. In case the Bank felt that the property in question is insufficient to cover both the credits, they could have further stipulated additional collateral securities for Mr.B’s credit., or could have changed the collateral security taken for Mr.A with other securities and attach the owners property (Mr.B’s) as collateral for his own credit.

 Logically, Bank who is suppose to undergo every aspects of its borrowers financial standing and the scrutiny on the title of the property  which was taken as collateral security, seems to be a  party for the evolution of such a dispute.

According to me, the Bank has not taken a prudent decision while granting credit to Mr. B, by not attaching the same property taken as collateral for Mr.A. It was known to the bank, that the property was owned by  Mr.B who was their prospective borrower at that stage.  

As, the exact position is not detailed, it is not assessable, whether the credit appraisal process initiated by the Bank at the time of extending credit to Mr.B was very much in order.

However, a clarification from the Bank should be obtained, as to why they have waived stipulation of any collateral security at the time of granting loan to Mr.B, or why is own property which was offered as collateral security for the loan to his brother, has not been additionally attached as security for his own loan.