RBI lays out stern and dreary rules for banks lending to real estate sector
The Reserve Bank of India has set the standards of due severe and tedious in the industry for banks in sanctioning of loans to real estate, after an inspection found that the majority of frauds were due to forgery even after specialized lawyers and accountants.
The central bank said that banks should make every effort to disappear verify the documents, including cross-checking of the local administration to ensure that fraud is eliminated.
“In case of loan against the security of land, banks may also request reports from local tax authorities with respect to the title before the sanction of loan,” said the producer in a note to the presidents and CEOs banks. “Wherever the title of the documents are submitted as collateral for loans, should be a system in which property records are subject to verification as to its authenticity, particularly high volume of loans.”
RBI directive may be a sequel to the series of arrests of the Central Bureau of Investigations last year, including senior executives LIC Housing Finance and the Bank of Mexico for alleged fraud. About eight executives were charged with bribery in what was called the “loans-for-bribes’ scandal. But that does not cause any problems in the system.
But the central bank’s latest decision could delay property loan sanctions at all levels and can result in a further blow to the real estate sector is witnessing a slowdown in sales and growing losses.
The reason for the failure of the concurrent auditors was attributed to the complex nature of financial products or transactions. Also RBI also notes that the banks had assigned responsibility for auditing their own staff, without making sure they are properly trained.
To do this, banks would have to talk directly with the competent authority issuing the certificate. Banks also would have to seek corroboration indirectly indicating that the sender in the event that there is no response within a specified period, they assume that the certificate is authentic.
“Due diligence could lead to additional delays in the sanction of high value loans,” said a banking analyst.
RBI has also asked banks to independently confirm the validity of the public accountant, certified valuation of the property, legal certificate, guarantee / credit line or any other third party certification by the borrower.
“In these cases states that the certificate issued by a public accountant, lawyer, registered property appraiser or third parties, bad, banks in India ‘Association should initiate a process to issue a” watch list “in regarding the certification of all banks, “the central bank.
To avoid fraud, the bank must also ensure that internal discipline, staff turnover, checks and balances are in place.
Source: [ET]
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