Savings Bonds Now Eligible as Collateral for UCB Loans

RBI/2008-2009/225 UBD.PCB.Cir. No. 6 /13.05.000/2008-09 October 15  , 2008 The Chief Executive Officer of all Primary Scheduled (Urban) Co-op. Banks Dear Sir / Madam, 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable) & 8% Savings (Taxable) Bonds  2003 - Collateral facility - UCBs As you are aware of, in terms of relevant Government of India Notifications, Savings Bonds issued under the captioned schemes, were 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). Copies of the following amending notifications issued by the Government of India are enclosed: a.)  No. F.4(13)-W & M/2002 dated August 19, 2008 for 7% Savings Bonds, 2002 b.)  No. F.4(9) -W & M/2003 dated August 19, 2008 for 6.5% Savings Bonds, 2003 (Non-taxable) and c.)  No. F.4(10)-W & M/2003 dated August 19, 2008 for 8% Savings (Taxable) Bonds, 2003 . 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. 5. Please acknowledge receipt to Regional Office concerned. Yours faithfully, (A.K.Khound) Chief General Manager-in-charge Extract from the Government Securities Act, 2006 Section 28 28.  Pledge, hypothecation or lien  (1) Subject to such terms and conditions as may be prescribed, the holder of a Government security may create a pledge or hypothecation or lien in respect of such security. (2) On receipt of notice of pledge or hypothecation or lien from the holder of the Government security, the Bank or any agent maintaining the account in respect of such security shall make necessary entry in its record and such entry shall be evidence of the pledge, hypothecation or lien thereof, as the case may be. Extract from the Government Securities Regulatios,2007 Chapter - VII Pledge, Hypothecation or Lien of Government Security 21. Pledge, Hypothecation or Lien of Government security- (1) The holder of a Government security may create a pledge, hypothecation or lien in respect of a Government security by – (a) issuing a notice of pledge, hypothecation or lien to the Bank, or, as the case may be, its agent, in triplicate in  Form-XIV ; and (b) submitting the stock certificate and the duly executed  Form-III  in relation thereto; or the duly executed  Forms-III ,  IV  or  V , as may be applicable to the Government security, where a pledge, hypothecation, or lien is to be created for the Government security held in subsidiary general ledger account or constituents' subsidiary general ledger account or bond ledger account, as the case may be. (2) The Bank, or, as the case may be, its agent may on receipt of the notice as referred to in clause (a) of sub-regulation (1), - (a) record the pledge, hypothecation or lien in its records and confirm the same on the duplicate and triplicate of the  Form-XIV  and such confirmation shall be conclusive proof of the creation of pledge, hypothecation or lien; and (b) where any discrepancy is found in the Form - XIV, issue a return memo on the duplicate and triplicate of the notice in Form - XIV, stating the reasons for not recording the pledge, hypothecation or lien. (3) The pledgee or creditor, at any time, when wants to invoke the pledge, hypothecation or lien may file an application in  Form-XV  in duplicate, to the Bank, or, as the case may be, its agent for transferring the Government securities in his favour alongwith the following documents, namely, - (a) the stock certificate, if any; (b) Form-XIV wherein the Bank, or, as the case may be, its agent has confirmed the recording of pledge; and (c) Forms - III, IV or V which may be applicable to the Government security and was executed at the time of creation of pledge, hypothecation or lien by the holder of the Government security. (4) The Bank, or, as the case may be, its agent may on receipt of the application under sub- regulation (3) – (a) record in its books, the invocation of pledge, hypothecation or lien and transfer of the securities in favour of the pledgee or the creditor and confirm the same on the duplicate of the application in  Form - XV ; or (b) issue a return memo to the pledgee or creditor on the duplicate of the application in Form - XV, if any discrepancy is found, stating the reasons for not transferring the securities in the name of the pledgee or the creditor. (5) The pledgee or the creditor may, at any time, before the registration of transfer of the Government securities in the books of the Bank or its agent in his favour, apply to the Bank, or, as the case may be, its agent in Form-XVI in triplicate for cancellation of such pledge, hypothecation or lien application registration. (6) The Bank, or, as the case may be, its agent may on receipt of the application under sub-regulation (5) – (a) record the cancellation of pledge, hypothecation or lien registered in its books and confirm the cancellation on the duplicate and triplicate of the application in  Form-XVI ; and (b) issue a return memo on the duplicate and triplicate of the application in Form - XVI to the pledgee or the creditor, stating therein the reasons for not cancelling the pledge, hypothecation or lien. (7) The Forms - III, IV or V executed at the time of creation of pledge, hypothecation or lien, shall be valid during the currency of the pledge, hypothecation or lien created in respect of the Government security. (8) Subject to the forms prescribed in this regulation, the transfer form, notice of pledge, hypothecation or lien, confirmation of pledge, hypothecation or lien, application for cancellation or invocation of pledge, hypothecation or lien, or return memo, may be executed in electronic form under digital signature, as defined in clause (p) of Section 2 of the Information Technology Act, 2000 (21 of 2000). 22. General provisions relating to pledge, hypothecation and lien (1) The Bank or, as the case may be, the Government shall not be responsible to any person creating pledge, hypothecation or lien or party to thereof for any loss caused to him on account of the invocation of the pledge, hypothecation or lien by the pledgee or the creditor in violation of the terms of pledge, hypothecation or lien or the provisions of any other law for the time being in force. (2) The Bank or, as the case may be, its agent shall (a) not take cognizance of any notice or claim of any person that may be received by it before it has taken the steps required to be taken under regulation 21 on receipt of  Forms-XIV ,  XV  or  XVI ; (b) take the steps required under regulation 21 as if it had not received such notice or claim. (3) No transfer by the holder of any Government security in respect of which pledge, hypothecation or lien is in force shall be effected by the Bank or its agent without the prior concurrence of the pledgee or the creditor, as the case may be. (4) The Government security in respect of which pledge, hypothecation or lien has been recorded in the books of the Bank or its agent, as the case may be, matures for repayment, the maturity proceeds shall not be payable to the holder of the security, without the written concurrence of the pledgee or creditor along with duly executed Form - XVI. Explanation :  For the purpose of regulation 21 and this regulation, : (a) "pledgee" means a person in whose favour the Government security has been pledged; (b) "creditor" means a person in whose favour the Government security has been hypothecated or a lien in respect thereof has been created. FORM - III [See regulations 4 (1) (c) and 21] TRANSFER OF STOCK CERTIFICATES I/We* …………………………. (transferor/s) do hereby assign and transfer my/our* interest or share in the inscribed stock certificate number ……………..of ………… percent Government Loan of ……………. amounting to Rs. ………. being the amount /a portion of the stock for Rs. ………. as specified on the face of this instrument together with the accrued interest thereon to ……………………….(transferee/s), his / her / their* executors, administrators or assigns, and I/We* …….………… do freely accept the stock certificate number ……………….to the extent it has been transferred to me/us*. I/We* ………………………. (transferee/s) hereby request that on my/our* being registered as the holder/s of the stock transferred to me/us*, the above stock certificate to the extent it has been transferred to me/us* may be renewed in my/our* name (s)/converted in my/our* name(s). @I/We*………………………. (transferor/s) hereby request that on the above transferee(s) being registered as the holder/s of the stock hereby transferred to him/them*, the aforesaid stock certificate to the extent it has not been transferred to him/them* may be renewed in my/our* name (s). As witness, our hand the …………… day of …………… two thousand and ……………… Signed by the above-named transferor in the presence of** ……………………. ………………………………………..

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-2009/225 · issued FY 2008-09. The plain-English explanation above is BankPulse’s own independent summary.

🖨 Print / Save as PDF 🔗 Copy link☆ Save for later