In the present situation when market conditions are on a fluctuating mode, keeping market based instruments as collaterals for loans can affect the loan too.

Decline in value of the collateral hits the loan in a way that it reduces the eligibility of the borrower by a considerable figure.

When a borrower is taking a big ticket loan, shares and mutual funds kept as collateral help in getting big amounts sanctioned.

"It is safer to pledge debt instruments because the loan-to-value (LTV) is higher and these are less volatile," says R K Bansal, senior executive director, IDBI Bank.

Similar thoughts are harbored by R S Sangapura, general manager, retail, Canara Bank. However, he says that the rate of return would get fixed in the range of 6-8%.