Multiple choice

A customer has balance in his savings bank account. The bank’s right of set-of can be used for the recovery of a loan in which of the following cases?

  1. A bank guarantee issued by the bank

  2. A term loan has been sanctioned and the instalment is still to fall due

  3. A cash credit limit is sanctioned to the party and it is running regular

  4. Customer is guarantor in a loan account of another person and that person has defaulted in repayment of the loan.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Sometimes, a bank will only provide credit to a customer if someone else provides a guarantee. If you agree to be a guarantor for a borrower, the bank can require you to pay the borrower’s debts if they default on their repayments. If one has guaranteed a borrower’s debts and the borrower defaults on their lending, the bank can require the one to pay the borrower’s debts. 

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