Savings Bonds now eligible as collateral for bank loans
Current · Source: Reserve Bank of India · RBI/2008-2009/136 · issued 21 Aug 2008 · ~2 min read
Quick answerGovernment now allows pledge of 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), and 8% Savings (Taxable) Bonds 2003 as collateral for loans from scheduled banks, following amendments to the bond schemes.
The rule, in the simplest words
You can now use your 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), or 8% Savings (Taxable) Bonds 2003 as a promise to pay back a loan from a bank (this is called 'collateral').
Only the person who owns the bond can use it for their own loan—you cannot use someone else's bond to get a loan for yourself.
The bank must follow special rules (Section 28 of the Government Securities Act, 2006 and Regulations 21 and 22 of the Government Securities Regulations, 2007) to record and use the bond as collateral.
Banks need to update their systems and teach their branches how to handle this new type of collateral.
How it plays out — a real example
A treasury officer in Indore, Priya, has a customer who owns 8% Savings (Taxable) Bonds 2003 worth ₹5 lakh. The customer wants a ₹3 lakh personal loan. Priya now can accept those bonds as collateral, following the new government rules, and records the pledge in her bank's system using the special forms from the Government Securities Act. She makes sure the loan is only for the bondholder, not for a friend or relative.
What changed
Previously, these savings bonds were not eligible as collateral for loans from banks, financial institutions, or NBFCs. The Government of India has now amended the scheme notifications to permit pledge, hypothecation, or lien of these bonds in favor of scheduled banks, under Section 28 of the Government Securities Act, 2006 and Regulations 21 and 22 of the Government Securities Regulations, 2007.
What it means for you
Banks can now accept these specific savings bonds as collateral for loans extended to the bondholders themselves, not to third parties. This expands the pool of acceptable collateral for retail lending, potentially increasing loan accessibility for bondholders. Banks must update their systems and procedures at issuing offices to record and invoke pledges as per the GS Act and Regulations.
What you must do
Advise designated branches to facilitate collateral facility through pledge, hypothecation, or lien as per Section 28 of GS Act and Regulations 21 and 22.
Put in place necessary systems, controls, and procedures at issuing offices for recording and invoking pledges.
Ensure collateral facility is extended only for loans to bondholders, not to third parties.
Acknowledge receipt of this circular.
Who it affects
Scheduled banks (State Bank of India & associates, nationalised banks, Axis Bank, HDFC Bank, ICICI Bank, IDBI Bank), Stock Holding Corporation of India Ltd, Holders of 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), and 8% Savings (Taxable) Bonds 2003
❓ Common questions
Which specific bonds are now eligible as collateral?
The 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), and 8% Savings (Taxable) Bonds 2003 are now eligible for pledge, hypothecation, or lien as collateral for loans from scheduled banks.
Can these bonds be used as collateral for loans to third parties?
No, the collateral facility is available only for loans extended to the bondholders themselves, not for loans to third parties.
What legal framework governs the pledge process?
The pledge, hypothecation, or lien must be created in accordance with Section 28 of the Government Securities Act, 2006 and Regulations 21 and 22 of the Government Securities Regulations, 2007.
📜 Read the original circular — full text as issued by RBI
RBI/2008-2009/136
Ref. DGBA.CDD. No. H - 1772/13.01.299/2008-09
August 21, 2008
Shravana 30, 1930 (S)
The Chairman and Managing Director
State Bank of India & Associate Banks
17 Nationalised Banks
Axis Bank Ltd / HDFC Bank Ltd / ICICI Bank Ltd/ IDBI Bank Ltd &
Stock Holding Corporation of India Ltd
Dear Sir,
7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable) & 8% Savings (Taxable) Bonds 2003 - Collateral facility
As you are aware of, in terms of relevant Government of India Notifications, Savings Bonds issued under the captioned schemes, are presently not eligible as collateral for loans from banks, financial institutions and non banking financial companies etc.
2. It has now been decided by the Government of India to allow for pledge or hypothecation or lien of the bonds issued under the captioned schemes as collateral for obtaining loans from scheduled banks. Accordingly, the holders of the said bonds will be entitled to create pledge or hypothecation or lien in favour of scheduled banks in accordance with section 28 of the Government Securities Act, 2006 (the G S Act) and regulations 21 and 22 of the Government Securities Regulations, 2007 (the G S Regulations). Copy each of the following amending notifications issued by the Government of India
No. F.4(13)-W & M/2002 dated August 19, 2008 for 7% Savings Bonds, 2002
No. F.4(9) -W & M/2003 dated August 19, 2008 for 6.5% Savings Bonds, 2003 (Non-taxable) and No. F.4(10)-W & M/2003 dated August 19, 2008 for 8% Savings (Taxable) Bonds, 2003 is enclosed.
3. In view of the above amendments, you may please advise the designated branches suitably for facilitating extension of collateral facility through pledge or hypothecation or lien as per the procedure laid down in Section 28 of the GS Act and Regulations 21 and 22 of the GS Regulations. You may also arrange to put in place necessary systems, controls and procedures at the issuing offices for recording pledge or hypothecation or lien as also invocation of the same. Relevant extracts of the Act / Regulations along with the forms and the relative press release issued by the Government of India are enclosed for ready reference.
4. It may be noted that collateral facility is available only for the loans extended to the holders of the bonds and, as such, the facility is not available in respect of the loans extended to third parties . In this connection, a separate instruction to all the scheduled banks is being issued by the regulatory departments concerned of RBI.
5. Please acknowledge receipt.
Yours faithfully,
( Dr. Balu K .)
Deputy General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-2009/136 · issued 21 Aug 2008. The plain-English explanation above is BankPulse’s own independent summary.
Advise designated branches to facilitate collateral facility through pledge, hypothecation, or lien as per Section 28 of GS Act and Regulations 21 and 22.
💰 Credit
Ensure collateral facility is extended only for loans to bondholders, not to third parties.
💻 IT / Systems
Put in place necessary systems, controls, and procedures at issuing offices for recording and invoking pledges.
📜 Compliance
Acknowledge receipt of this circular.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Branch Manager at a bank this circular applies to (Scheduled banks (State Bank of India & associates, nationalised banks, Axis Bank, HDFC Bank, ICICI Bank, IDBI Bank), Stock Holding Corporation of India Ltd, Holders of 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), and 8% Savings (Taxable) Bonds 2003), your first concrete step on “Savings Bonds now eligible as collateral for bank loans” is: “Advise designated branches to facilitate collateral facility through pledge, hypothecation, or lien as per Section 28 of GS Act and Regulations 21 and 22.” (RBI issued this 21 Aug 2008).
Circular: RBI/2008-2009/136 -- Savings Bonds now eligible as collateral for bank loans
Issued: 21 Aug 2008
Action required: Advise designated branches to facilitate collateral facility through pledge, hypothecation, or lien as per Section 28 of GS Act and Regulations 21 and 22.
Action required: Put in place necessary systems, controls, and procedures at issuing offices for recording and invoking pledges.
Action required: Ensure collateral facility is extended only for loans to bondholders, not to third parties.
Action required: Acknowledge receipt of this circular.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
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BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4429&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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