Difference between Guarantee and Indemnity

Contract of Guarantee has existence of two contracts. Indemnity is only one contract.

Contract of Guarantee has three parties. Indemnity contract has only two parties.

Liability of Guarantor is co-existence whereas liability of indemnifier is primary.

Guarantor has the right of subrogation.

Contract of Guarantee can be implied like in case of Endorsement.

Contract of Guarantee has always consideration

CHARGING OF SECURITIES

Securities obtained at the time of giving a loan are of great significance. It is imminent therefore that securities are properly charged in favour of bank for realization of debt at the time of default. Securities are broadly divided into two categories: –

  1. Primary Security                                       ii) Collateral Security

Primary Security: It can be further divided into two categories

i) Personal Primary Security: security created out of execution of documents like Promissory note, acknowledgement of debt etc. and

ii) Impersonal Primary Security: security created out of assets purchased from the borrowed funds like current assets

Collateral Security: can be further divided into two broad categories

i) Personal Collateral Security i.e. given by the borrower himself and

ii) Impersonal Collateral Security i.e. given by third party.

Charging of securities means creating bank’s charge over these securities. The charge on securities is obtained mainly through following modes:

  1. Pledge: According to Section 172 of Indian Contract Act 1872 the pledge is ‘bailment of goods as security for payment of a debt or performance of a promise’. The person who offers security is called the pledgor or pawner and the person who obtains custody of the goods is called pledge or Pawnee. The bailment is transfer of goods from one person to another with the promise of returning them in case the promise is fulfilled. There are two essential characteristics in bailment; i) Delivery of goods and ii) Return of goods. Even handing over of keys of the godown can also be termed as delivery of goods if substantiated by other factors. Similarly handing over document of title to goods like bill of lading, railway receipts, lorry receipts with proper endorsement will also be equivalent to delivery of goods if the warehouseman is authorized to hold goods on behalf of bailee (i.e the person who now holds title to goods) and he accepts it. This is called delivery by attornment. It must be remembered that bailment can be of goods only and not of money. The bailee has right, in case of default, to sell the bailed goods and/or to file the suit for recovery.
    1. The pledgee has to return the goods on fulfillment of promise in good condition.
    1. The pledgee is responsible for any loss damage etc. if happened due to non-returning of the goods in time.
    1. The pledgee is bound to give any increase in profit if it happens so in due course.
    1. The pledgee is bound to take as much due care as a person with ordinary prudence.
  2. Hypothecation: Hypothecation is creating charge over the goods without actually passing on the possession. The hypothecation charge is usually created on current assets, moveable assets. The title and possession remain with the party but charge is hypothecated in favour of bank, this is also called constructive charge. There is always a clause in the agreement by powers of which the bank can take pledge of the hypothecated goods in case of default. The bank can always choose, in case of default, to take control of the goods and sell them to recover the dues without intervention of the court. If the hypothecated goods are lying inside the rented premises, the landlord should give an undertaking that premises will remain on rent till the time bank loans is running. He should also undertake to provide free access to the premises for all purposes relating to goods.
  3. Assignment: Assignment is transfer of right, property or debt existing or future except secured by mortgage of movable and/or immovable property. The person transferring the right is called assignor and person getting the right is called assignee. The assignment is usually for actionable claims like LIC policies, debts recoverable from government etc. The assignment can be legal or equitable. In legal assignment a notice is given to the debtor regarding assignment. In equitable assignment no such notice or information is required.
  4. Lien: means right of the creditor to retain goods or securities offered by the debtors till his debt is serviced. Negative Lien: the borrower sometimes is not ready to give possession of the goods or properties but gives an undertaking that he will not dispose off or make the goods encumbered till he repays the dues. Negative lien is the form of a personal assurance or undertaking which gives no right to the bank to proceed against the property itself and thus creates no encumbrance or charge on the property.
  5. Right of Set Off: is combining of accounts between a debtor and creditor so as to arrive at net balance. Right of Set off for the purpose of a bank means applying the credits in a bank for setting off the debt liabilities of a customer. However, a bank is required to meet following conditions for applying the set off:
    • Both the accounts of the customer are held in same capacity.
    • The repayment of the debt is due
    • The liability is for a sum that is certain
  6. Mortgage: Section 58 of Transfer of Property Act 1882, defines mortgage as ‘transfer of an interest in specific immovable property for the purpose of securing the payment of money, advanced or to be advanced by way of loan, an existing or future debt, or performance of an engagement which may lead to pecuniary liability.’

The main forms of mortgage are: Simple Mortgage, Mortgage by Conditional Sale, Usufructuary mortgage, English Mortgage, Mortgage by deposit of title deed and Anomalous mortgage.

    BULK DEPOSITS

    The RBI has revised the definition of bulk deposit vide instructions dated 07.06.2024

    • Single Rupee term deposits of Rupees three crore and above for Scheduled Commercial Banks (excluding RRBs) and Small Finance Banks.
    • Single Rupee term deposits of Rupees one crore and above for Local Area Banks as applicable in case of Regional Rural Banks.

    PRAVAAH PORTAL

    Pravaah portal is launched by RBI in order to stream line the process of obtaining approvals under FEMA.  The portal is set to revolutionize the approval process, offering a faster and streamlines solution to FEMA related issues.  The portal allows direct digital communication between the applicant and the RBI by passing the need for intermediary like Authorized Dealers.  The Indian corporates as well as Non resident India can utilize the services to have direct issues placed before RBI through the portal.  The following facilites may be available from the portal

    1. Approval to corporates for multiple account opening
    2. Payment of external commercial borrowing
    3. Remittance to maintain foreign branches
    4. Foreign companies can seek approval to expand branch activities in India
    5. NRIs can apply for sale of agriculture land
    6. Approval for remittance to NRIs for amount exceeding USD 1 million..
    7. NRIs can apply for approval to receive gifts of immovable properties from relatives in India
    8. Approval for credit sale proceeds from sale of more than two housing properties into their non resident external accounts.

    Project Nexus: Instantaneous Cross-Border Retail Payments

    Reserve Bank of India has been collaborating bilaterally with various countries to link India’s Fast Payments System (FPS) – the Unified Payments Interface (UPI), with their respective FPSs for cross-border Person to Person (P2P) and Person to Merchant (P2M) payments.

    The Reserve Bank of India has now joined the Project Nexus, a multilateral international initiative to enable instant cross-border retail payments by interlinking domestic FPSs.

    Nexus, conceptualised by the Innovation Hub of the Bank for International Settlements (BIS), aims to connect the Fast Payment Systems of four ASEAN countries (Malaysia, Philippines, Singapore, and Thailand); and India, who would be the founding members and first mover countries of this platform.

    An agreement to this effect was signed by the BIS and the central banks of the founding countries i.e., Bank Negara Malaysia (BNM), Bank of Thailand (BOT), Bangko Sentral ng Pilipinas (BSP), Monetary Authority of Singapore (MAS), and Reserve Bank of India on June 30, 2024, in Basel, Switzerland. Indonesia, which has been involved from the early stages, continues to be involved as a special observer.

    Going forward, the platform can be extended to more countries as well. The platform is expected to go live by 2026. Once functional, Nexus will play an important role in making retail cross-border payments efficient, faster, and more cost effective.

    Foreign Remittance Online Submission of Form A2

    Reserve Bank of India vide its circular dated 03.07.2024 has reviewed its extant guidelines on remittance of funds based on submission of Form A2 through online mode.  As per existing guidelines the authorized dealer category I and II were allowed to remit amount upto USD 25000 without obtention of Form A2.  On review, the RBI has removed the upper limit as such the AD I and AD II banks can permit remittance based on online submission of Form A2 as per their board framed policies.

    MONETARY POLICY STATEMENT, 2024-25 AUGUST  2024

    On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting on August 8, 2024 decided to:

    • Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent.
    • Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

    The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

    These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

    Statements on Development and Regulatory Policies

     Public Repository of Digital Lending Apps:

    The Digital Lending Apps are being used for misseling by unsucrupulous players and customers are getting duped. In order to aid the customers in verifying the claim of Digital Lending App’s (DLAs) association with REs, Reserve Bank is creating a public repository of DLAs deployed by the REs which will be available on RBI’s website. The repository will be based on data submitted by the REs (without any intervention by RBI) directly to the repository and will get updated as and when the REs report the details, i.e., addition of new DLAs or deletion of any existing DLA. Detailed instructions in this regard shall be issued shortly.

    Frequency of Reporting of Credit Information to Credit Information Companies

    The credit institutions are mandated to submit information to CICs on monthly or lesser intervals. The RBI has now mandated that information shall now be submitted on fortnighlty or lesser intervals.

    Enhancing Transaction Limits for Tax Payments through UPI

    Limit for tax payments through UPI has been enahnced from current Rs. 1.00 lakh to Rs. 5.00 lakh.

    Continuous Clearing of Cheques under Cheque Truncation System (CTS)

    Cheque Truncation System (CTS) currently processes cheques with a clearing cycle of up to two working days. To improve the efficiency of cheque clearing and reduce settlement risk for participants, and to enhance customer experience, it is proposed to transition CTS from the current approach of batch processing to continuous clearing with ‘on-realisation-settlement’. Cheques will be scanned, presented, and passed in a few hours and on a continuous basis during business hours. The clearing cycle will reduce from the present T+1 days to a few hours. Detailed guidelines in this regard shall be issued shortly.

    Statements Issued vide June 2024 MPC on Development and Regulatory Policies

    1. Review of Bulk Limits: Rs. 3.00 Cr for SCBs excluding RRBs.  For RRBs and LABs – Rs.1 Cr

    2. Setting up a Digital Payments Intelligence Platform: The Reserve Bank, over the years, has undertaken a number of measures for the safety and security of digital payments to maintain public confidence in digital payment systems and to minimize the incidence of frauds.  Many frauds occur by influencing unsuspecting victims to make the payment or share credentials.

    To further strengthen the ecosystem so as to minimize the frauds, RBI has set up a Digital Payments Intelligence Platform which will harness advanced technologies to mitigate payment fraud risks. To take this initiative forward, the Reserve Bank has constituted a committee (Chairman: Shri A.P. Hota, former MD & CEO, NPCI) to examine various aspects of setting up a digital public infrastructure for Digital Payments Intelligence Platform. The Committee is expected to give its recommendations within two months.

    3. Inclusion of Recurring payments under e mandate framework:  The payments, such as replenishment of balances in Fastag, NCMC, etc. which are recurring in nature but without any fixed periodicity, as such they are being brought into the e-mandate framework.  Under the e-mandate framework, it is proposed to introduce an automatic replenishment facility for such payments. The automatic replenishment will be triggered when the balance in Fastag or NCMC falls below a threshold amount set by the customer. 4.  Introducing auto-replenishment of UPI Lite wallet – The UPI Lite facility currently allows a customer to load his UPI Lite wallet upto ₹2000/- and make payments upto ₹500/- from the wallet. In order to enable the customers to use the UPI Lite seamlessly, and based on the feedback received from various stakeholders, it is proposed to bring UPI Lite within the ambit of the e-mandate framework by introducing an auto-replenishment facility for loading the UPI Lite wallet by the customer, if the balance goes below a threshold amount set by him/her.