For some time now, investors have had tough time trying to borrow using various securities as collateral. Several securities were not allowed as collateral and those holding such instruments were left with no option.
There are different kinds of borrowing present in the market. The rate of interest paid by the borrower depends on the kind of loan availed and also the nature and type of security submitted as collateral.
If a loan is taken without adequate security, the interest rate will be high. At the same time, several loan products sought specified security. As a result, either a person will not be able to borrow, or borrow a small amount because of the lesser value of the security involved.
Government securities eligible
A recent directive allows specific securities to be used as collateral. These include various Government of India savings bonds that were issued in last few years.
The common ones that a lot of investors hold are the 8 per cent Government of India bonds that are still open for investment, the 6.5 per cent savings bond that were tax-free in nature, and the 7 per cent taxable bonds. All these bonds can now be used as a collateral. These are the most common instruments into which investors have put their money over the last few years.
Fielding these bonds as security, an individual can borrow from scheduled banks. Areas where these securities will be accepted are also clarified; hence a person knows the type of banks that he can approach. The individual can then submit this for the stated purpose and get the necessary loan by following the process.