Loan against FDR
A fixed deposit is payable after the expiry period. The encashment of a fixed deposit before its maturity results in loss of interest to the depositor.- He may. therefore, borrow money against the fixed deposit receipt to meet some of his urgent needs. A fixed deposit receipt issued by the same banker is the safest form of security. However, he should take the following precautions :
(i) Loan should be advanced to the same persons in whose name or names the fixed deposit receipt stands. In case the receipt has been issued in the name of two or more persons and the loan is sought by one of them. the bank should ask for a letter of authority signed by all depositors authorizing the intending borrower to borrow money against the receipt. Even-if the deposit receipt has been issued as “payable to either or survivor” the advance cannot be granted to one of the depositors without authority from the other or others. This is because the condition of deposit being “payable to either or survivor” applies to payment at or after maturity. It does not apply to payment before maturity or raising a loan against it.
(ii) The bank should obtain from the borrower:
(a) The deposit receipt duly discharged by signing on the back of it across a revenue stamp.
(b) A memorandum of pledge authorizing the bank to utilize the proceeds of the deposit on its maturity towards repayment of the loan.
In case of joint depositors. the 4ischarge note as well as the memorandum should be signed by all the depositors. Their signatures should tally with the specimen signatures kept by the bank.
(iii) The bank should note the fact regarding its right of lien on the deposit receipt as well as in the Fixed Deposit Register. In case the fixed deposit receipt has been issued by some other branch of the lending bank, the money should be advanced only after branch , verified the signatures of the depositor(s) as well as has entered a similar note in its fixed deposits register.
(iv) In case the receipt stands 10 the name of a minor no advance should be granted against such a receipt.
(v) On maturity of the deposit, the money due to the customer on account of deposit will be utilized towards setting off the loan and the balance’ will be credited to the current or savings account of the depositor. In case the loan is repaid before the maturity of the deposit, the lien and discharge noted on the receipt will be cancelled and the receipt will be handed over to the depositor after obtaining acknowledgement.
A banker should not normally grant loans against fixed deposit receipt issued by other banks. However, in exceptional cases loans may be advanced subject to the following precautions in addition to those given above:
(i) The banker should obtain a letter from the depositor addressed to the bank which issued the deposit receipt, requesting it to pay the principal and interest to it.
(ii) The banker should also send a notice to the bank which issued the receipt intimating about advancing of money to the depositor.
(iii) The bank should not affix its stamp on the deposit receipt issued by another bank)
(iv) On the date of maturity, the bank should send the deposit receipt together with the authority letter to the bank which issued the deposit receipt with the request that the money due under the deposit receipt should be paid to it. On receipt of such money the banker should adjust the proceeds against the loan and the balance if any should be credited to the savings or current account of the borrower. In case the borrower repays the money before the maturity of the deposit the bank should cancel its lien and the discharge noted on the receipt 1and return the deposit receipt to the borrower after obtaining acknowledgment.
- Application for credit
- Accepted copy of sanction letter
- D. P. note
- Letter of arrangement
- Letter of Lien
- FDR (duly discharged)
- Letter of authority to adjust the account with the FDR.
- Letter of continuity
- Memorandum of Deposit of Securities
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