What are Approved Securities? Meaning, Types and Uses in India

When you approach a bank or financial institution for a loan, one of the first things they ask is: What security can you pledge? Not every investment or asset qualifies as collateral. This is where the concept of approved securities comes in. These are recognised, reliable financial instruments that lenders trust and borrowers can easily pledge. Approved securities help ensure smooth borrowing, reduced risk for lenders, and easier access to funds for investors. They form the backbone of many financial transactions in India, especially when it comes to secured loans.

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What are approved securities?

Approved securities are financial instruments that the government or regulatory bodies notify as acceptable for various financial and legal purposes. Banks, insurance companies, and NBFCs recognise them as secure investments that can be pledged as collateral for loans or used to meet statutory requirements.

Simply put, they are the “trustworthy” securities that both lenders and regulators consider safe.

Definition of approved securities

Approved securities can be defined as securities specifically notified under law or by the Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (IRDAI), or other bodies, which can be used to meet legal obligations or as collateral for borrowing. For instance, government bonds, Treasury bills, and certain debentures fall under this category.

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List of approved securities in India

Here are some commonly recognised approved securities in India:

• Central Government securities (like Treasury Bills, Government Bonds)
• State Government securities
• Certain debentures and bonds specified by the RBI or SEBI
• Securities issued under specific government schemes
• Other instruments are notified by regulatory authorities from time to time

Types of approved securities

Approved securities can be broadly classified into the following types:

• Government securities – Bonds and bills issued by the Central or State Government.
• Treasury bills (T-bills) – Short-term debt instruments issued by the government.
• State development loans (SDLs) – Bonds issued by state governments for funding projects.
• Approved debentures – Specific corporate debentures recognised by RBI/SEBI.
• Other notified securities – Instruments that regulators notify from time to time.

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Use of approved securities in loans and financial products

Approved securities are mainly used in:

• Collateral for loans – Investors can pledge them to access loans without liquidating investments.
• Statutory requirements – Insurance companies and banks must hold approved securities to meet solvency norms.
• Investment portfolios – Considered safe options, often included in conservative investment strategies.

For borrowers, pledging approved securities ensures lower interest rates compared to unsecured borrowing. For institutions, it creates a safety net

Why are approved securities important for investors and lenders?

For investors, approved securities provide dual benefits: earning returns and enabling access to liquidity. They reduce the need to sell assets in emergencies. For lenders, approved securities act as secure collateral. Since these instruments have government backing or regulatory approval, the risk of default is lower. Thus, approved securities help maintain financial stability for both sides.

Regulatory bodies governing approved securities in India

The framework for approved securities is shaped by multiple authorities:

• Reserve Bank of India (RBI) – Governs the use of securities by banks and NBFCs.
• Securities and Exchange Board of India (SEBI) – Regulates corporate securities and capital markets.
• Insurance Regulatory and Development Authority of India (IRDAI) – Defines approved securities for insurance companies.
• Government of India – Issues notifications regarding securities from time to time.

Not all securities qualify as “approved”. Here is how they differ:

Approved securities for Loan Against Securities (LAS)

For loans against securities, only certain types qualify as approved collateral. These typically include:

• Listed shares
• Mutual fund units
• Government bonds
• Certain debentures and ETFs
• Other instruments allowed by RBI/SEBI

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How to check if a security is approved?

You can verify if a security is approved through:

• RBI notifications and circulars
• SEBI guidelines and approved lists
• IRDAI regulations for insurers
• Official government notifications
• Checking with your bank or financial institution before pledging

Documents required to pledge approved securities

When pledging approved securities for a loan, you typically need:

• One recent photograph and one of the officially Valid documents:  Aadhaar, Voter ID Card, Passport, Driving License, NREGA Job Card, Letter issued by National Population Register 
• In case current addres is not available on OVD, any one of the deemed to be officially valid document: Utility bill, Property or Municipal tax receipt, Pension or Family Pension Payment Orders (PPOs), Letter of Allotment of Accommodation from Employer issued by State Government or Central Government Departments, Statutory or Regulatory Bodies, Public Sector Undertakings, Scheduled Commercial Banks, Financial Institutions and Listed Companies, and Leave & License Agreements with such employers allotting official accommodation
• Demat account details (for shares/bonds)
• Mutual fund statement (for MF units)
• Loan application form

Risks involved in using approved securities as collateral

While approved securities are generally safe, some risks remain:

• Market risk – The value of securities can fluctuate, affecting loan eligibility.
• Margin calls – If the value drops below the required margin, the lender may demand additional collateral.
• Liquidity risk – Some securities may be difficult to sell quickly if needed.
• Foreclosure risk – Lenders can sell securities if repayment obligations are not met.

Conclusion

Approved securities play a vital role in India’s financial ecosystem, serving as trusted instruments for both investment and borrowing. They provide safety for lenders, flexibility for borrowers, and stability for the market. For anyone seeking funds without disturbing their portfolio, pledging approved securities is one of the smartest solutions.

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