Hypothecation ... really good subject to understand that why banks getting fraud several times by loan department...and common people getting tension with banks though having balance but bank not giving them own money...
Further need to read the Wikipedia details link given here
See... First read few questions answers
What's Hypothecation?
Hypothecation is the practice where a debtor pledges collateral to secure a debt or as a condition precedent to the debt, or a third party pledges collateral for the debtor. A letter of hypothecation is the usual instrument for carrying out the pledge.
Example
What is Car Loan “hypothecation”?
Hypothecation is the practice where you pledge an asset (in this case, a car) to a bank when applying for a loan. The bank keeps the car as collateral or security until you pay it off.
If you don't pay the installation the car will be taken back by bank..
But that Time the car's valuation would be down and that time if bank resale the same... It can't getting back own based value of car and thus the bank getting loss of few own capital...
I have an example of car related matter...
Once I was worked in pharmacy parenteral company and there a managing director's uncle some how got little accident with company's car. He made 100% loss with insurance company though it's a simple smaller accident. Than got different types of resale value. I am not sure but if it is with hypothetication with bank the value should made different on sales part in second way means without paper and as per depreciation cost would be different from originally which would be shown in balance sheets of financial years...
And thus person can making different kind fraud with bank too if the bank auditor not checked the documents proper....
Today in India so many banks merging done but as per assets and capital if they gives better fixed deposit interest than people got attractive mind for doing on paper or legal transaction and making more white money Nation wide...
Jigar Mehta / Jaigishya
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