BPD.PCB.Cir. 36 /13.08.00/2003-04
February 27, 2004
The Chief Executive Officers of all
Primary (Urban) Co-operative Banks
Grant of advances against the
security of Relief Bonds
Please refer to our circular UBD.No.PCB.82/DC.(13.08.00)/92-93
dated June 2, 1993 advising banks that they may sanction advances against the
security of 10% Relief Bonds 1993 on the terms mentioned in paragraph 2 thereof.
2. As you are aware, Government
of India have from time to time issued Relief Bonds with different interest
rates and maturities. The bonds are now issued in dematerialized form also,
viz. Bond Ledger Account, by specified branches of 30 agency banks, as per the
Annexure. We have been receiving queries as to whether banks can sanction advances
against the security of these bonds also. We clarify that the bonds issued in
different series as above would be eligible securities for sanction of loans
subject to the terms as detailed in our above circular viz.,
- The banks should satisfy themselves as to
the acceptability of the purpose, genuiness of the credit need of the borrower
and end-use of funds lent, and should not be guided solely by availability
of Relief Bonds as security:
- The rate of interest should be in accordance
with the directives on interest rates issued by the Reserve Bank of India
from time to time;
- Adequate margin should be kept to cover defaults,
if any, in repayment of the principal and interest at the appropriate rate.
3. It has been observed that many
banks have not got these Bonds/Certificates transferred in their own names before
disbursal of loans. They refer the matter to Public Debt Office of the Reserve
Bank of India /specified branches of agency banks after a lapse of 2-3 years
from the date of sanction of loan or after the bond has matured for repayment.
Some of the banks have also reported that the Bonds pledged with them but not
transferred in their name have been lost. A few instances of fake Bonds/Certificates
have also come to our notice. Recently, we have come across a case where a person,
reporting himself to be an agent of the Bond holder, had submitted a colour
xerox copy of the Bond for signature verification of the Bond holder. Such practices,
intentionally or unintentionally, may lead to frauds. There is an urgent need
to introduce a control mechanism at your end so as to ensure that sanction of
loans from different banks against the same bond is prevented.
4. The banks are, therefore, advised
to exercise caution and keep the following aspects in view while sanctioning
loans against Relief Bonds/Certificates :
- there is no provision to record a lien of the
lending bank against a Government Security including Bond Ledger Account.
In case the lending bank would like to have the Government Security as a collateral,
it has to be got transferred in its name. In this connection, we further advise
that as per extant instructions, Relief Bonds can be held by any banking company
if the same are transferred in the name of bank for the limited purpose of
obtaining advances against the security of such bonds.
- No third party loans can be sanctioned against
- As per the Government of India Notification,
Savings Bonds are not eligible for being held as security against loans.
UCBs are advised to be vigilant
and put in place necessary safeguards to ensure that such irregularities do
not take place in their banks.
5. Please acknowledge receipt to our Regional Office.
(S. Karuppasamy )
Chief General Manager-in-Charge
Encl : Annexure I