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
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.