RBI/2008-2009/136
Ref. DGBA.CDD. No. H - 1772/13.01.299/2008-09

August 21, 2008
Shravana 30, 1930 (S)

The Chairman and Managing Director
State Bank of India & Associate Banks
17 Nationalised Banks
Axis Bank Ltd / HDFC Bank Ltd / ICICI Bank Ltd/ IDBI Bank Ltd &
Stock Holding Corporation of India Ltd

Dear Sir,

As you are aware of, in terms of relevant Government of India Notifications, Savings Bonds issued under the captioned schemes, are presently 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). Copy each of the following amending notifications issued by the Government of India

1. No. F.4(13)-W & M/2002 dated August 19, 2008 for 7% Savings Bonds, 2002
   
2. No. F.4(9) -W & M/2003 dated August 19, 2008 for 6.5% Savings Bonds, 2003 (Non-taxable) and
3. No. F.4(10)-W & M/2003 dated August 19, 2008 for 8% Savings (Taxable) Bonds, 2003

is enclosed.

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. In this connection, a separate instruction to all the scheduled banks is being issued by the regulatory departments concerned of RBI.

5. Please acknowledge receipt.

Yours faithfully,

(Dr. Balu K.)
Deputy General Manager