I was earlier working for a finance comoany and we used to take not one but 12
blank cheques. Every time there would be a default we would present a cheque to
file a case of cheque dishonour which is a criminal offence.
I believe the bank is within it's right to keep a blank cheque. However the
bank should also acknowledge to you in writing the conditions under which the
blank cheque will be used. The bank should also confirm that in the event there
is a misuse of the cheque they will compensate you for losses.
Once you have gotten a letter as above from the bank there should be no
worries as long as you have an honest intention of clearing the banks loans on