What changed
Previously, these specific savings bonds were not eligible as collateral for loans from banks, financial institutions, or NBFCs. Now, the Government of India has amended the relevant notifications to allow pledge, hypothecation, or lien of these bonds as collateral for loans from scheduled banks. The amendments are dated August 19, 2008, and the circular is effective from October 15, 2008, applying to three bond schemes: 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), and 8% Savings (Taxable) Bonds 2003.
What it means for you
Urban co-operative banks can now accept these government savings bonds as collateral, expanding their secured lending options. Banks must follow the procedures under Section 28 of the Government Securities Act, 2006 and Regulations 21 and 22 of the Government Securities Regulations, 2007 for recording and invoking pledges. This facility is restricted to loans given to the bondholders themselves, not to third parties.
What you must do
- Advise designated branches to accept these savings bonds as collateral per the amended Government notifications.
- Implement systems and controls at issuing offices to record pledge, hypothecation, or lien as per GS Act and Regulations.
- Ensure collateral facility is extended only to loans for bondholders, not third parties.
- Acknowledge receipt of this circular to the respective Regional Office.
Who it affects
Primary Scheduled Urban Co-operative Banks (UCBs), Holders of 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), and 8% Savings (Taxable) Bonds 2003
Which specific savings bonds are now eligible as collateral for loans?
The 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable), and 8% Savings (Taxable) Bonds 2003 are now eligible as collateral for loans from scheduled banks, following Government amendments dated August 19, 2008.
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 procedures must banks follow to record the pledge of these bonds?
Banks must follow Section 28 of the Government Securities Act, 2006 and Regulations 21 and 22 of the Government Securities Regulations, 2007, including using Form-XIV for notice and recording the pledge in their records.