The Hindu Business Line : IBA concern over home loan frauds

The Indian Banks Association is concerned about the proliferating cases of housing loan frauds. It has undertaken a survey of member banks to collect data on housing loan frauds and evolve a concrete action plan to tackle the problem.

IBA has asked member banks to provide information on frauds they have encountered by fabrication of income documents (such as IT return, salary slip etc), encashment of loan cheques by third parties, frauds caused by forged title documents (through use of colour photocopies and fake stamp paper), overvaluation of property to secure higher loan amounts and instances of multiple financing by different agencies.

Loans on same property

The problem of housing loan frauds has surfaced recently, particularly after banks discovered that in some instances, a number of them had financed the same property. Till recently, housing loans were considered the safest lending option for banks. Historically, low default rate of less than one per cent (no one wants to lose the roof over his head), was considered as a guarantee of healthy asset quality in this business.

That logic proved to be a powerful driver of the housing loan boom in India that began five years ago. Housing loans grew from a level of Rs 16,000 crore in 2001 to a level of Rs 1,86,000 crore in 2006. This scorching pace of growth and the resultant excesses did not go unnoticed. As early as December 2003, the Reserve Bank of India started sounding warning signals - in what it saw as too rapid an increase in housing loans. The RBI's then Deputy Governor, Mr Vepa Kamesam, cautioned banks that the delinquency rate in housing loans would not remain at less than one per cent forever, if they took short cuts.

`Ringing loud, clear'

More recently, Mr Deepak Parekh, Chairman, HDFC, said in his Annual Report for 2005-06, " The siren of caution in the real estate market is now ringing loud and clear".

Mr Tom Barrack, arguably the world's greatest real estate investor, likens the current real estate market to a game of polo, saying: " I feel totally safe playing Polo on a field full of pros, but when amateurs are all over the field, someone can get killed. They have more guts than brains and charge after every ball and don't know when to hold back."

"It is the same with the current Indian real estate market; even in India, we need to license projects and rate developers. If there is no clearing off the turf, the amateurs are going to get trampled, taking seasoned horsemen down with them."

The time has come for bankers to take these warnings seriously.

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