## Classification of Advances
Advances are classified on three dimensions:
```
Advances
├── Sector-wise: Priority | Non-Priority
├── Security-wise: Secured | Unsecured
└── Prudential: Standard | NPAs (Sub-standard, Doubtful, Loss)
```
### 1. Sector-Wise Classification
RBI issues guidelines for lending to the Priority Sector, covering:
- Rate of interest and service charges
- Receipt, sanction, rejection, disbursement register
- Issue of Loan Application Acknowledgement
- Targets for priority sector lending
---
### 2. Security-Wise Classification
| Type | Description |
|---|---|
| Primary Security | Principal security offered by the borrower — the one against which credit is extended |
| Collateral Security | Additional/supplementary security; can be tangible/intangible, movable/immovable |
Common securities accepted by banks:
Personal guarantees, Goods/Stocks/Debtors, Gold, Immovable property, Plantations, Third-party guarantees, Banker's general lien, LIC policies, Stock exchange securities.
---
### 3. Modes of Creating Security (Critical for Exam)
| Mode | Key Feature | Ownership | Possession |
|---|---|---|---|
| Mortgage | Transfer of interest in immovable property | Remains with mortgagor | Remains with mortgagor |
| Pledge | Delivery of goods; specific (fixed) charge | Remains with pledger (borrower) | Transferred to bank |
| Hypothecation | Equitable charge on movables; no delivery | Remains with borrower | Remains with borrower (as agent/trustee of bank) |
| Assignment | Transfer of actionable claims (book debts, LIC policies) | Transferred to bank | — |
| Set-off | Bank adjusts debit balance against credit balance in another account | — | — |
| Lien | Legal right to seize and dispose of asset | Remains with owner | Seized by lender upon default |
Key distinctions:
- Pledge vs Hypothecation: In pledge, possession transfers to bank; in hypothecation, borrower retains possession as agent/trustee.
- Set-off: Applies across all branches (all branches = one entity); covers time-barred debts too.
- Assignment: Only actionable claims (book debts, LIC policies) — not physical goods.
---
### Two Types of Mortgage
| Registered Mortgage | Equitable Mortgage |
|---|---|
| By a registered instrument ('Mortgage Deed') signed by mortgagor | By mere delivery of title deeds with intent to create security |
| Formal, registered with sub-registrar | Informal, no registration required |