Saji varghese (manager) 27 June 2010

Collateral Security

Dear Friends,

As you are aware that banks provide loans to parties on securities.RBI has issued circular to give collateral free loans to SME(Small and Medium Enterprise) sector upto Rs 10 Lacks.Banks sanction Working Capital loans which are regularised and renewed every year.documentation are done every year except the deposit of title deeds of secured property as bank already has it while sanctioning.now please let me know if abank inspite of RBI guideline obtains collateral security for given loan will the charge be valid?.Can it be challenged in court if banks try to enforce sarfesi in case loan is defaulted.In any case after default bank can proceed legally to recover its dues,so can it be used as a pretext by banks that since they are responsible to public deposits they have done no harm in accepting collateral security(or the client came forward and gave security).also since renewals are done year on year basis will the norms apply to loans taken earlier.Thanks .

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7 Replies

adv. rajeev ( rajoo ) (practicing advocate) 27 June 2010

While executing the document you have to resist, once it is done you cannot do anything. If banks insists for collateral security ,you can ask in written, if they give then you can challenge it on the basis of the RBI guidelines

Saji varghese (manager) 27 June 2010

Thanks Rajooji,there are SC judgements were in it has been said that guidelines of RBI are mandatory for banks to follow.There may be supervisory also but if its mandatory banks have to follow.I am not sure how many of our borrowers are aware of their rights.Banks are bound by Banking Regulation and RBI being the Regulator ,my question is whether such an agreement flouting the norms is legal.If Banks are nor permitted(In circular its clearly written,must not obtain collateral security for loans upto 10 lacs in SME cases) can they enforce it ,when prima facie the borrower had beenn kept in dark about guideline and they executed document for a loan which was supposed to be collateral free.I hope i am able to put correctly my query.Pls not RBI had clarified in circular that the guideline is mandatory.

T.R. Ganesan (Advocate) 27 June 2010

Hi, Saji,

It is clear from your statement from the judgements of Supreme Court that the guidelines of RBI is mandatory for obtain loan by the SME upto Rs. 10.00 Lacs. You may at the first instance approach

RBI with your grieveance that the lending Bank is flouting their guidelines of collateral free loan. You may also verify whether the guidelines of RBI is only applicable to designated Banks.

Ganesan,

Advocte

PJANARDHANA REDDY (ADVOCATE & DIRECTOR) 27 June 2010

YOU CAN REF THIS SITE, THE INFORMATION CAN HELP IN LEGAL BATTLE https://www.cgtmse.in/

Satya Narayana Palukuru (Advocates & Mediators.) 27 June 2010

The guidelines given by Rbi to banks is to encourage easyprocessing of loan in

order to encourage SME establishment . you and your bank should have been subject to the guidelines

at the time of sanction of loan and not at the time when unit has become NPA

However you can take up with the RBI for use of other new enterpreneuer

Saji varghese (manager) 27 June 2010

Thanks Satyanaryanaji.

Your are correct sir.My question was say the unit is functional non npa unit but Working Capital limits are renewed every year.moot question is since RBI has said that banks have to give mse loans upto 10 lac collateral free ,are the banks going to make loans extended upto 10 lacs taking collateral ,collateral free? or they continue to charge collateral when now RBI has issued direction to give loans uoto 10 lac collateral free.Most of the banks are unwilling to free collateral and thats my concern.

Thanks.