"Obtaining proper Security Documents for the Loans and Advances sanctioned by the Banks reduces the Credit Risk". Explain the precautions to be taken by the banker in this regard.

The following are the precautions, in nutshell, which should be taken care of both by the borrower as well as banker, at the time of preparation, execution and registration of loan documents etc. thereby it is admissible in the court of law, if the borrower not paid the amount to the banker. Judicial authority not accept the improper documents of contract agreements for loans and advances sanctioned by the banks, thereby it leads to credit risk of the banks. Person, executing the loan documents must be competent to enter into a contract i.e., he or she should have contractual capacity. The loan documents should bear proper type of stamps i.e. adhesive, embossed etc. Further value of stamp duty should be adequate, keeping in view the laws of the State in which the documents are executed. No column of the loan documents should be left blank. While executing the documents, the borrower must sign in full and in the same flow in which his signatures are available in the bank. The cuttings & over writings must be avoided and if at all, they become unavoidable, they should be authenticated by the borrowers by signing in full. Sometimes the borrower does not understand the language of the loan documents. In such a case, a separate letter, in the language of the borrower should be taken from him stating that the contents of the loan documents have been explained to him and well understood by him, including the terms and conditions of the loan sanctioned. The letter should be got witnessed by another person. In the case of an illiterate borrower who puts his thumb impression on the loan documents, the bank official in whose presence the documents are executed, should give a certificate on a separate paper that the contents have been fully explained to the borrower in a language which he speaks and understands. This certificate should be got witnessed by independent persons. All the documents must be completely filled in before their execution. The guarantee form should be executed if so agreed and stipulated as a term of sanction.