Pari Passu Charge — Meaning, Example & How Banks Use It in Lending
Pari passu charge is one of the most commonly used security structures in consortium and multiple banking arrangements in India. When two or more banks lend to the same borrower against the same asset, understanding pari passu charge becomes essential for every credit officer, branch manager and JAIIB aspirant. This article explains the meaning, a real-world calculation example, and the legal requirements around NOC and CERSAI registration.
What is Pari Passu Charge in Banking?
Pari Passu is a Latin phrase meaning equal footing. In banking, pari passu charge means two or more lenders hold equal rights over the same asset as security for their loans. No single lender has priority over the others — all rank equally.
The phrase comes from Roman law and literally translates to “with equal step.” In the context of banking and secured lending, it means that multiple lenders — typically banks in a consortium or multiple banking arrangement — create a simultaneous charge of the same rank over an asset pledged as collateral by the borrower. This is in contrast to a first charge, where one lender has a superior claim over all others.
Banks use pari passu charge when a borrower’s financing needs exceed what a single lender can provide, or when regulatory or policy limits require loan sharing. The legal framework governing pari passu charge includes the SARFAESI Act 2002 (which governs enforcement of security interest), the Transfer of Property Act 1882 (which governs mortgages and charges on immovable property), and the Companies Act 2013 (which requires charge registration by corporates). The charge must also be registered on CERSAI to be valid against third parties.
Pari Passu Charge — Real-World Example with Recovery Calculation
The best way to understand pari passu charge is through a numerical example. Consider a manufacturing company taking loans from three banks against the same factory property.
Company ABC takes loans from three banks, all secured by first pari passu charge over its factory (market value ₹8 crore):
• SBI: ₹5 crore (first pari passu charge)
• PNB: ₹3 crore (first pari passu charge)
• Bank of Baroda: ₹2 crore (first pari passu charge)
• Total secured debt: ₹10 crore against factory worth ₹8 crore
Company ABC defaults. The factory is sold under SARFAESI for ₹8 crore. Recovery is distributed pro-rata:
• SBI: 5/10 × ₹8 Cr = ₹4.00 crore (shortfall ₹1.00 crore)
• PNB: 3/10 × ₹8 Cr = ₹2.40 crore (shortfall ₹0.60 crore)
• Bank of Baroda: 2/10 × ₹8 Cr = ₹1.60 crore (shortfall ₹0.40 crore)
Total shortfall of ₹2 crore is borne proportionally — no single bank gets a preferential recovery.
This example illustrates the key principle: under pari passu charge, no lender can act unilaterally to enforce the security or receive a greater share than their proportional exposure. All enforcement actions — SARFAESI notices, DRT proceedings, sale of asset — require the consent and coordination of all pari passu charge holders.
Types of Charges in Banking — Comparison Table
| Type of Charge | Meaning | Priority | When Used |
|---|---|---|---|
| First Charge | Highest-ranking security interest over an asset | Highest — paid first on enforcement | Single primary lender |
| Second Charge | Subordinate to first charge on the same asset | Paid only after first charge is fully satisfied | Secondary or subordinate lenders |
| Pari Passu Charge | Equal ranking among multiple lenders on the same asset | Equal — pro-rata recovery for all | Consortium and multiple banking |
| Exclusive Charge | Only one lender has a charge; no other lender can create charge on same asset | Sole lender’s claim is exclusive | Single lender arrangements |
| Fixed Charge | Charge over a specific, identified asset (e.g., a particular machine or building) | Depends on when charge was created | Plant, machinery, land and buildings |
| Floating Charge | Charge over changing pool of assets (stocks, debtors) — crystallises on default | Usually lower than fixed charge | Working capital — stock, debtors |
First Charge vs Pari Passu Charge — Key Differences
| Parameter | First Charge | Pari Passu Charge |
|---|---|---|
| Number of Lenders | Typically one primary lender | Two or more lenders simultaneously |
| Recovery Priority | First charge holder paid before anyone else | All lenders share recovery proportionally |
| NOC Requirement | First charge holder’s NOC needed for any additional charge creation | All existing pari passu holders must give NOC for new lender to join |
| Common Use Case | Home loans, term loans with single bank, project finance | Consortium lending, large corporate credit, working capital from multiple banks |
| CERSAI Registration | Mandatory within 30 days | Mandatory for each lender within 30 days of charge creation |
NOC Requirement in Pari Passu Charge — Why It Matters
A bank that disburses a loan without obtaining a No Objection Certificate (NOC) from all existing lenders in a pari passu arrangement violates RBI and IBA guidelines. This exposes the new bank to legal disputes over charge enforcement and may attract regulatory scrutiny. Always verify existing charges on CERSAI before disbursement.
The NOC requirement exists to protect existing lenders from dilution of their security. When a new bank joins the pari passu arrangement, the total debt secured by the same asset increases — which potentially reduces each lender’s recovery in case of default. Existing banks, therefore, have the right to assess whether to permit the addition of a new lender before granting NOC.
Borrower approaches a new bank for additional credit, declaring existing banking arrangements and assets offered as security.
Before processing the loan, the new bank conducts a CERSAI search to identify all registered charges on the proposed security. This reveals existing pari passu charge holders.
A formal NOC request is sent to every existing pari passu charge holder. Each lender evaluates the request based on the borrower’s total exposure, asset coverage ratio and repayment track record.
After receiving written NOC from all existing lenders, the new bank disburses the loan, executes charge documents, and registers the pari passu charge on CERSAI within 30 days.
CERSAI Registration of Pari Passu Charge
Pari passu charge must be registered on CERSAI within 30 days of creation. Failure to register makes the charge void against any third-party purchaser or subsequent mortgagee for value. Registration is mandatory under Section 23 of the SARFAESI Act 2002.
CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) is the single national registry for all security interests created over immovable and movable property in India. Each lender in a pari passu arrangement must individually register their charge on CERSAI — one lender’s registration does not cover all. For fees, search procedures and a step-by-step filing guide, see our detailed article on CERSAI Charges 2026 — Registration Fees & Search Process.
Common Mistakes in Pari Passu Charge — Errors to Avoid
1. Disbursing without NOC: Never disburse against a pari passu asset without written NOC from all existing charge holders. Verbal consent is not sufficient.
2. Missing CERSAI registration deadline: Registering pari passu charge after 30 days requires filing with delay reasons and may attract scrutiny. A charge unregistered beyond 60 days is especially risky.
3. Not verifying existing charges via CERSAI: Relying solely on the borrower’s disclosure without conducting an independent CERSAI search is a serious credit control failure.
4. Treating pari passu as exclusive security: Banks sometimes sanction loans treating a pari passu asset as if it covers their full exposure — without accounting for the pro-rata sharing. Proper collateral coverage must be assessed on a shared basis, accounting for all pari passu lenders’ exposures combined.
Understanding collateral security and how primary versus collateral assets are classified is equally important when working with pari passu charge structures. For a comprehensive overview, see our article on What is Collateral Security and Primary Security in Bank Loans.
Pari Passu Charge — Frequently Asked Questions
What does pari passu charge mean in banking?
Pari passu charge means that two or more lenders hold an equal and simultaneous charge over the same asset as security for their respective loans. No single lender has priority over the others — all lenders have equal rights to the secured asset. Recovery on enforcement is shared proportionally to each lender’s outstanding exposure.
What is the difference between first charge and pari passu charge?
Under a first charge, one lender has the highest priority claim over a specific asset. In the event of default, the first charge holder is repaid in full before any other lender receives anything. Under pari passu charge, multiple lenders share equal priority — no single lender is preferred over the others, and recovery is shared pro-rata based on each lender’s loan amount.
Can a bank disburse a loan without NOC from other pari passu lenders?
No. Disbursing a loan without obtaining a No Objection Certificate (NOC) from existing lenders in a pari passu arrangement violates RBI and IBA guidelines. A new lender must verify existing charges via CERSAI, obtain written NOC from all existing charge holders, and only then disburse the loan and create its pari passu charge. Failure to follow this process exposes the new lender to regulatory risk and potential disputes.
How is pari passu charge registered on CERSAI?
After the loan is disbursed and the pari passu charge is created, the lender must register it on CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) within 30 days of creation. The registration requires uploading charge documents, paying the prescribed fee, and entering the asset details. Failure to register within 30 days makes the charge void against any subsequent purchaser or mortgagee for value.
What happens to pari passu lenders when a borrower defaults?
When a borrower defaults, all pari passu lenders have equal rights to enforce the charge and recover their dues. The asset is typically sold — either through SARFAESI Act enforcement, court action, or DRT proceedings. Sale proceeds are distributed among all lenders on a pro-rata basis, i.e., in proportion to their respective loan outstanding amounts. If the asset realises less than total outstanding, each lender bears the shortfall proportionally.
