The security and collateral agency agreement is an agreement between the lender and the borrower. In this case, all the agreement procedures are being carried out by an agency, which is most often a clearing bank. The collateral agreement requires a security amount to be deposited by the borrower for the sanction of the loan. The role of a collateral agency is to check and ensure that the security amount deposited at the lender is appropriate with respect to the amount of loan that is being sanctioned.
In other words, it can be said that the agencies acts as the middle man and manage the security agreements between the loan lender and the borrower. The security and collateral agency agreements greatly reduce the risks for the lenders by the help of a secured amount. And, the borrowers also get a greater flexibility to repay the loans.