Question

Why are demand deposits considered as a form of collateral? Demand deposits are already a form of money, so giving them as collateral means giving money as collateral. And if the borrower already has that amount of money, why borrow?
The same goes for the saving of the SHGs, which are used as collateral to obtain loan from a bank.

Answer 1

They are considered to be a form of collateral because the deposits in the bank is a money which is acceptable and acts as a means of exchange .If the borrower is not able to pay the money taken as loan then the banks can settle the issue by deducting the money from his account ,if it is equivalent to the money borrowed.