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Which of the following is not a mode of securing the risk, generally adopted by the bank before giving loans to a construction firm
1. Hypothecation
2. Pledge
3. Lease
4. Mortgage

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Correct Answer - Option 3 : Lease

Concept:

Lease:

A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments for a specified period in exchange. It is not a mode of securing the risk, generally adopted by the bank before giving loans to a construction firm.

Mortgage: 

The mortgage is used for creating charges against immovable property which includes land, buildings, or anything that is attached to the earth or permanently fastened to anything attached to the earth (However, it does not include growing crops or grass as they can be easily detached from the earth).  The best example of when the mortgage is created is when someone takes a Housing Loan / Home Loan.  In this case, the house is mortgaged in favor of the bank/financer but remains in possession of the borrower, which he uses for himself or even may give on rent.

Hypothecation:

Hypothecation is used for creating charges against the security of movable assets, but here the possession of the security remains with the borrower itself.   Thus, in case of default by the borrower, the lender will have to first take possession of the security and then sell the same. The best example of this type of arrangement is Car Loans. In this case, Car / Vehicle remains with the borrower but the same is hypothecated to the bank/financer. 

Pledge:

Pledge is used when the lender (pledgee) takes actual possession of assets (i.e. certificates, goods ).  Such securities or goods are movable securities.  In this case, the pledgee retains the possession of the goods until the pledgor (i.e. borrower) repays the entire debt amount. In case there is a default by the borrower, the pledgee has a right to sell the goods in his possession and adjust its proceeds towards the amount due. Some examples of pledges are Gold /Jewellery Loans, Advance against goods,/stock,  Advances against National Saving Certificates, etc.

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