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What is lien amount: Meaning, reasons and removal process

What is lien amount: Meaning, reasons and removal process

What is the lien amount?

The lien amount refers to the specific amount in your bank account that is temporarily frozen or blocked by the bank. This means you’ll see the money in your bank balance, but you won’t be able to use or withdraw it until the lien is removed. A lien is typically placed to hold or block funds in your bank account so that they can be used to repay dues or fulfill certain financial obligations later.

In technical terms, a lien refers to the bank’s legal right to hold or reserve funds in your account to secure repayment of dues or settle obligations. This can happen under several scenarios; for example, you have an unpaid loan EMI, a pending credit card payment, or you’ve applied for an Initial Public Offering (IPO).

Let’s consider an example to understand the lien amount meaning better. Suppose you have Rs. 1 lakh in your savings account, but your bank places a lien of Rs. 15,000 due to an unpaid credit card bill. Although your bank balance would still be Rs. 1 lakh, your usable balance becomes Rs. 85,000 until you clear the dues or the lien is removed.

What is a lien in banking?

In banking, a lien means the bank’s legal right to hold or retain funds or assets belonging to a customer to secure a debt or a financial obligation. It prevents the account holder from accessing or withdrawing the marked funds until a specific debt or obligation is cleared. The amount that is placed under a lien is known as the bank lien amount. While the amount remains visible in your account balance, you cannot withdraw or transfer it until the lien is lifted.

You must note that a lien in banking differs from an account freeze or block. While a lien is a legal claim on a specific amount in a bank account, a freeze or block refers to a condition wherein the bank puts a complete halt on all transactions in an account. This is usually done in response to issues like suspected fraud or non-compliance with the bank’s directives. You can access the remaining account balance in the case of a lien. However, a freeze makes the entire account inaccessible.

Another term that often confuses borrowers is “lien charge”. The lien charge meaning refers to the legal right a lender has over a borrower’s asset or property until the outstanding debt is fully repaid. It helps the lender recover dues if the borrower defaults.

Types of liens

Now that you know the lien amount meaning, it’s time to discuss the types of liens in banking. Depending on how and why a lien has been created, it can be categorized into any of the following types:

  1. Voluntary lien

When a lien is created with the borrower’s or account holder’s consent, it is known as a voluntary lien. For example, when you apply for an IPO, you typically authorize your bank to create a lien over the subscription amount in your bank account. Upon receiving allotment, the lien amount is paid to the issuing company. In the case of non-allotment, your bank releases the lien amount.

  1. Involuntary lien

An involuntary lien is imposed without a borrower’s or an account holder’s consent. This typically happens due to legal or regulatory authorities’ instructions to your bank. For example, if there’s a tax scrutiny on you, the Income Tax Department can instruct your bank to place a lien on your bank account. This type of lien is removed only after you pay your pending taxes (along with the fine, if any).

  1. Statutory lien

A statutory lien arises from specific laws or banking regulations, with or without the borrower’s consent. It gives the lender a legal claim over the borrower’s asset or property to ensure payment for a debt or obligation.

  1. Consensual lien

A consensual lien is very similar to the voluntary lien, and the two terms are often used interchangeably. It is created based on a mutual agreement between the two parties. For example, when you apply for a loan against a fixed deposit, your lender instructs your bank to create a consensual lien on your FD until you clear the loan.

Why do banks place a lien on your account?

There can be several reasons for your bank to place a lien on your account balance. They can be voluntary or involuntary, and typically mean your bank has temporarily restricted access to a portion of your funds. It can be due to a legal penalty being imposed by a regulatory authority or a consensual move for a financial activity.

Here are some valid reasons for a lien amount in your bank account:

  1. Unpaid loan EMIs

One of the most common reasons why banks place liens on their customers’ accounts is missed or delayed EMI payments. The lien amount will help the lender cover the outstanding loan amount if the borrower fails to pay the EMIs even after repeated reminders.

  1. Outstanding credit card dues

Failing to pay your credit card bills on time can result in your bank placing a lien on a portion of your account balance. This prevents you from using all the funds in your bank account until the dues are cleared.

  1. Legal claims

Banks may also place a lien on a portion of your account balance if there is a court order resulting in legal claims. It helps in settling legal disputes and ensures compliance with the court’s order.

  1. IPO applications

When you apply for an IPO through ASBA (Application Supported by Blocked Amount), you instruct your bank to place your bidding amount under lien until the shares are allotted or the refund is processed.

  1. Unpaid taxes or regulatory holds

Tax authorities, such as the Income Tax Department or the GST (Goods and Services Tax) Department, may instruct your bank to lien-mark funds in your account. In such a case, a lien balance means that it could be used to clear your tax dues.

What is a lien on your bank account?

A lien on your bank account typically means that a specific portion of your account balance has been temporarily locked by the bank. In other words, your bank has restricted you from withdrawing or using a specific amount until certain conditions are met. So, the next time you are going through your bank statements or mobile banking app, and you suddenly notice a lien amount, you would probably know what it means and why it’s there.

Knowing what a lien balance means and how to check a lien in a bank account is crucial, as it helps you identify such holds early and take corrective action. You can either clear pending dues or contact your bank for clarification if you feel the lien is unjustified or unauthorized.

How to check the lien balance in your account?

Finding a lien amount early helps you avoid payment failures or surprises. There are several ways through which you can check the lien balance in your bank account:

  • Look for SMS or email alerts

Most banks send SMS or email alerts to account holders when they create a lien on their accounts. Do check your inbox for any such message or notification informing you about the lien balance in your bank account.

  • Online banking portal

You can log in to your online banking portal to check your lien balance. It should be displayed separately under your account balance section. If not, you can go to the “Account Summary” section and click on the “Lien details” or similar option to check your lien amount. Different banking portals may have different interfaces and options.

  • Mobile banking app

You can also use your mobile banking app to check the lien balance in your account. The process remains the same as it is for the web portal. Log in to your mobile banking account and tap on the “Account Summary” option under the “My Accounts” section. Your total available balance, along with the lien balance, will be displayed.

  • Account statement

Your monthly account statements also reflect your lien amount. Look for an entry that explicitly states “Lien Marked” or “Amount Under Lien”. If you do not have your bank account statement, you can download it from your online banking portal or get it via email by contacting your bank’s customer support team.

  • Branch visit

You can even visit the nearest branch of your bank to inquire about the lien balance in your account. A bank representative will fetch the necessary details for you.

How to remove a lien from your account?

Once you’ve identified a lien in your bank account, it becomes crucial to take steps to remove it. Here’s the step-by-step lien removal process you can follow:

1. Identify the reason

First, you must identify the reason why the lien was placed on your account balance. Is it because of a loan default or tax dues, or anything else? Is it voluntary or involuntary?

2. Make the necessary payment(s)

If the lien amount is due to a pending loan EMI or credit card dues, clear the necessary payment(s). The bank will automatically remove the lien upon the lender’s instructions.

3. Contact your bank

If the lien is still not removed or if there’s a technical glitch, contact your bank’s customer care team to ask how to remove the lien.

4. Submit the required documents

Sometimes, your bank may ask you to submit certain documents to remove the lien from the bank account. For example, a loan closure letter, a No Objection Certificate (NOC) from the lender, or a lien release letter.

5. Follow up if required

Once the bank verifies that the issue has been resolved, it will automatically remove the lien. However, if the lien still appears after seven to ten working days, follow up with your bank.

Sometimes, the lien removal process may take more time than expected. For example, when there is an ongoing loan repayment or a pending legal matter. In such a case, be patient and wait for the bank to remove the lien.

Conclusion

Understanding what is a lien amount and how it affects your bank balance is essential for managing your finances effectively. It is not a penalty but a temporary financial restriction placed by the bank to secure pending dues or legal claims. Review your account statements carefully to identify lien amounts and take prompt measures to remove or resolve them. Communicate proactively with your bank and remain patient when dealing with unexpected lien situations.

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FAQs

Can I earn interest on the lien amount in my bank account?

Yes. You can still earn interest on the lien amount in your bank account. It’s because a lien amount is very much a part of your account balance, just that you won’t be able to use or withdraw it until the lien is removed.

Is a lien the same as a bank account freeze?

No. A lien is not the same thing as a bank account freeze. A lien means a specific amount in your bank account is temporarily blocked due to pending dues or legal claims, while a freeze refers to a condition wherein the bank puts a complete halt on all transactions in an account.

How long can a lien remain on my bank account?

A lien typically remains active until the underlying issue, such as unpaid loan EMIs, pending credit card bill payments, or tax dues, is resolved. The bank may take three to seven working days to remove the lien once the issue is resolved or the dues are cleared.

Will a lien affect my credit score or loan application?

Yes. Liens can impact your credit score negatively and can affect your chances of getting a loan in the future, especially if the lien is due to loan defaults or unpaid dues. However, a temporary lien usually does not impact your credit score directly.

Can I request a lien removal without clearing dues?

No. It’s usually not possible for a bank to remove a lien before the outstanding dues have been cleared. A lien offers security to the lender against the outstanding loan balance or credit card dues.

What documents are required to request lien removal from the bank?

The documents required to request a lien removal depend on the underlying issue. For example, if the lien is due to the non-payment of loan EMIs, the required documents may include a loan closure letter, payment receipts, and an NOC from the lender.

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