Operational Aspects of Loan Accounts & Types of Collateral for JAIIB PPB Candidates

Welcome to this detailed study article designed especially for JAIIB PPB candidates. Here we explore every important aspect of Operational Aspects of Loan Accounts and Types of Collateral in depth. You will also find sections on charges, mortgages, SARFAESI Act 2002, working capital, gold loans, and fair lending practices. Don’t forget to watch the attached videos and download the PDF at the end.

1. Operational Aspects of Loan Accounts

This topic forms the core of the JAIIB PPB syllabus. It covers the entire credit process — from sanction to disbursement, monitoring, and recovery.
Key areas include interest rate norms, MCLR vs Base Rate, exposure limits, loan monitoring, and credit audit.

• Adherence to RBI’s interest rate frameworks such as MCLR and external benchmarks.
• Continuous tracking of borrower performance through early warning signals.
• Compliance with Fair Practices Code and transparent loan processing.

2. Types of Collateral & Their Characteristics

Collateral represents the security banks take while granting loans. Understanding the Types of Collateral is essential for both exams and practice.

Common Types of Collateral

• Land & Building – Immovable property offered as security. Must verify title and valuation.
• Goods & Stocks – Used in working capital loans under pledge or hypothecation.
• Life Insurance Policy – Assigned to the bank; value depends on premium payment history.
• Shares & Debentures – Marketable securities; banks check liquidity and borrower exposure.
• Gold Ornaments & Fixed Deposits – Common retail securities with specific margin norms.

3. Types of Charges on Collateral

The mode of charging determines how banks establish their claim on security. The main types are:

• Pledge – Possession transferred to lender.
• Hypothecation – Possession with borrower; bank holds equitable charge.
• Mortgage – Charge on immovable property.
• Assignment – Transfer of rights in documents like insurance policies or receivables.

4. Case Study: Mortgage Loan Default & Legal Enforcement

In case of borrower default, the bank initiates legal proceedings to recover dues. Proper valuation, possession, and documentation are crucial before invoking rights.

🎥 Part 2 – Understanding Types of Collateral and Loan Security

5. Eligibility under SARFAESI Act 2002

The SARFAESI Act 2002 empowers secured creditors to enforce security without court intervention for specified debts.
Banks can take possession, manage, or sell the secured asset after due notice.

6. Pricing Policy for Floating Rate Loans & RBI Guidelines

Loans sanctioned after April 2016 must follow MCLR or external benchmark rates.
Components include marginal cost of funds, CRR carry, operating cost, and tenor premium.

7. Cash Credit Facility against Hypothecation of Finished Goods

Working capital limits are often granted against stocks. Borrowers submit periodic stock statements;
banks verify inventory and maintain required margins as per sanction terms.

8. Loan Account Monitoring & Early Warning Signals

Monitoring helps detect early stress in accounts. Signals include frequent overdrawing, delayed stock statements,
decline in sales, or non-payment of interest.

9. Types of Mortgage & Foreclosure Rights

Important mortgage types include simple mortgage, mortgage by conditional sale,
and usufructuary mortgage. Banks enjoy rights of retention and foreclosure upon borrower default.

10. Fair Practices Code for Lenders & Loan Rejection Communication

Banks must maintain transparency in loan applications and communicate rejections with valid reasons.
A copy of loan agreement and terms must be provided to every borrower.

11. Pledge of Gold Ornaments & Repayment Rules

In Gold Loans, banks pledge jewellery after purity and valuation checks. Repayment is usually via bullet or EMI mode within the tenure decided by the bank.

12. Education Loan EMI & Moratorium

Education loans provide a moratorium during study period plus one year. Co-borrower and third-party guarantee norms apply based on amount.

13. Working Capital Loan & Contractor Supply Bills

Advances are extended against verified supply bills or work orders. These short-term loans need careful scrutiny of the underlying contract and payment guarantee.

14. Mortgage by Conditional Sale & Usufructuary Mortgage

In conditional sale, ownership transfers conditionally to bank; in usufructuary mortgage, the lender enjoys property income until loan repayment.

15. Credit Audit vs Appraisal & Monitoring

Credit Appraisal is pre-sanction evaluation; Monitoring is post-disbursement supervision; Credit Audit is periodic independent review to ensure portfolio quality.

16. Loan against Life Insurance Policy & Hypothecation Agreement

Policies can be assigned as security. Under hypothecation, borrower retains possession but lender has legal charge on assets.

17. MCLR vs Base Rate Components Explained

The shift from Base Rate to MCLR aimed to ensure faster transmission of monetary policy and transparency in loan pricing.

18. Loan against FD to Partner & Interest Rate Treatment

Loans against term deposits of partners or directors must maintain proper margin; interest on FD continues, but premature closure requires bank consent.

19. Mortgage Rights – Right of Retention & Foreclosure

Banks can retain property until dues are cleared and initiate foreclosure proceedings under applicable laws.

20. Educational Loan – Security & Third-Party Guarantee

No collateral up to ₹4 lakh; above that, third-party guarantee or tangible security may be required.

21. Loan for ESOP – Maximum Amount & Classification

Employee loans for purchasing ESOPs must comply with exposure norms, margin requirements, and proper classification under advances.

22. Partial Payment of Multiple Debts – Section 61 of Indian Contract Act

If a debtor owes multiple loans, payment appropriation follows the order indicated by debtor or, failing that, by the creditor as per Section 61.

23. Complaint Against Recovery Agent – Bank Obligations

Banks are responsible for the conduct of their recovery agents. Borrowers must be informed of agent details, and grievances must be addressed promptly.

✅ Conclusion & Key Take-Aways

• Master all operational aspects and collateral types for JAIIB PPB.
• Understand legal rights under SARFAESI Act 2002 and other statutes.
• Revise important terms like pledge, hypothecation, mortgage, and assignment.
• Watch the videos above for conceptual clarity and use the PDF for revision.

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