What is Floating Charge?
A Floating Charge is a charge on a class of fluctuating assets — like stock-in-trade or book debts — that the borrower can deal with in the ordinary course of business. It crystallises into a fixed charge on a defined event, typically default or winding up.
| Meaning | A Floating Charge is a charge on a class of fluctuating assets — like stock-in-trade or book debts — that the borrower can deal with in the ordinary course of business. It crystallises into a fixed charge on a defined event, typically default or winding up. |
|---|---|
| Category | Banking |
| Related Laws | Companies Act 2013, Transfer of Property Act 1882 |
| Who Uses It | Companies, working capital lenders |
| Why It Matters | Allows business operations while protecting lender on default. |
Floating Charge explained in plain English
A practitioner's view written for borrowers and advisors — not a textbook definition.
A Floating Charge is a charge on a class of fluctuating assets — like stock-in-trade or book debts — that the borrower can deal with in the ordinary course of business. It crystallises into a fixed charge on a defined event, typically default or winding up.
In practice, Floating Charge is used most often by companies, working capital lenders. Each of them sees the term from a slightly different angle: borrowers care about protection and outcomes, lenders care about classification and recovery, regulators care about consistency and disclosure.
The legal anchor for Floating Charge is Companies Act 2013, Transfer of Property Act 1882. RBI master directions, the SARFAESI Act 2002, the RDB Act 1993 and the IBC 2016 commonly interplay, depending on the loan size, security and stage of stress.
Why does it matter? Allows business operations while protecting lender on default. For a stressed borrower, getting this concept right early often saves several months of penal interest, legal cost and credit-score damage.
A real example: Bank takes a floating charge on the company's current assets for working capital. The mechanics may look complex, but the underlying logic — the bank wants closure, the borrower wants a fair outcome — is straightforward once the right framework is in place.
If you are facing a situation involving Floating Charge, the safest first step is a structured case review with a senior ex-banker who has handled comparable matters across banks and ARCs in India.
Where you'll encounter Floating Charge
Whenever a loan moves from "Standard" to "stressed", Floating Charge is one of the words that starts appearing in notices, bank emails and lawyers' opinions.
Sanctioning committees, recovery teams and risk officers use Floating Charge to classify accounts, decide provisioning and approve resolution paths.
Floating Charge appears in pleadings, securitisation applications, OAs, Section 7/9 petitions and SARFAESI writs as part of the dispute record.
When stressed loans are sold to ARCs or special-situations investors, Floating Charge is used in term sheets, assignment agreements and due-diligence reports.