Home loan frauds on the rise

The Reserve Bank of India has warned banks of rising incidents of frauds in home loans. The central bank has directed all banks to strictly adhere to due diligence procedures while disbursing the loans.

The RBI has also unearthed a number of cases where builders have defrauded banks by pocketing housing loans, which they managed to obtain in the names of fictitious persons by submitting forged documents.

An RBI note, recently sent to banks, has cited several instances in which banks have extended loans to customers who produced forged documents. There are cases in which same property has been offered as security to different banks by submitting fake title deeds.

In some cases, properties which were mortgaged to banks, did not even exist. The RBI also feels that some of the banks have been extending loans to customers without verifying details.

The documents – title deeds, income tax returns, salary certificates etc – submitted for availing of loans were found to be fictitious. Similarly, there are distortions in the profiles of borrowers too.

In some cases, borrowers added names of co-applicants to avail of a higher loan amount, a senior banker said.

He pointed out that some foreign and private sector banks had been extending home loans without the borrower even having to put in any margin money.

This has led to the loan-to-value ratio being 100 per cent or more. In contrast, public sector banks' loan-to-value ratio is only 80 per cent.

Explained a senior banker, "Typically, housing loans are big-ticket loans spread over a long tenure of 5-20 years. This is one of the main reasons that has caught the attention of fraudsters towards this portfolio. Instead of looking for an auto loan or an unsecured personal loan, they are going for long term home loans."

Sometimes a borrower and builder enters into an agreement to apply for a housing loan. Once the loan amount is sanctioned, the builder starts the project to avail of huge chunk of the principal amount. Before completing the entire project, the builder sometimes vanishes with the unutilised loan amount.

There has been a spurt in the demand for housing loans driven by rising disposable incomes, low interest rates and fiscal incentives on both interest and principal repayments.

Mortages, however, contribute only three per cent of the country's GDP compared with 51 per cent in the US, according to industry estimates. The size of the housing loan market is expected to be about Rs 75,000-80,000 crore (Rs 750 to Rs 800 billion) this financial year.