What Is The Meaning Of Bank Security?


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Nouman Umar answered
A security is an interest or a right in property given to the creditor to convert it into cash in case the debtor falls to meet the principal and interest on loan. We have discussed earlier that the bankers hold various kinds of securities as a cover of advances to their customers. The securities offered to the banks vary in rating. The securities which can be converted into cash without loss of value are ranked higher than that whose value fluctuate widely and tends to become frozen under adverse economic conditions.

The main types of security offered against the loans are stocks and shares, title deeds, life policies, bills of exchange, bills of sale, promissory notes and bullion. The banks also sometimes extend credit to their trusted customers on their personal securities or on the guarantees of responsible parties. The guiding principles of accepting securities are that they should be adequate, highly liquid, easy to handle and free from any encumbrance.

There are many attributes of the good tangible securities. In case the borrower is unable to repay the loan the security offered by him should be easily and quickly marketable. The security should be such that its exact value should be easy to asses in the market.

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