A master circular on housing finance issued by the RBI on July 1 has once again reiterated that builders publicly disclose names of the banks they have mortgaged their land and apartments to. However, despite this directive, none of the developers have done this so far, said market sources.  

The RBI circular asked banks granting loans for housing projects to ensure that builders or construction companies disclose in pamphlets, brochures and advertisements in newspapers whom they have mortgaged their property to. “The builder will indicate in their pamphlets/brochures that they would provide no objection certificate/permission of the mortgagee bank for sale of flats/property, if required,” said the circular.

“We must honour this stipulation. There should be no harm or difficultly in doing so. There have been complaints that the flat buyer was not aware about the mortgage. This rule will bring more transperancy,” said Sunil Mantri, president of the Maharashtra Chamber of Housing Industry.

Builders generally mortgage their land to get construction loans, a fact that most consumers are unaware of when they book flats in such projects. However, sources said most builders have avoided publicising these details.

According to industry sources, builders are handing out allotment letters to flat purchasers even when the flats are mortgaged to banks and financial institutions by the builder. “The buyer has no clue about this because the developer never divulges this information,” said a property expert.

“The money paid by the buyer has to go into the account of the bank from whom the loan has been taken by the builder. In most cases, the builder puts this amount into his own bank account without informing the lender bank. This tantamounts to a double sale. Every builder is doing this,” he said.

In fact, the RBI circular has advised banks not to release funds if builders do not comply with this directive. The Bombay High Court had earlier observed that banks granting finance to housing projects should insist on disclosure of the “charge or any other liability on the plot, in the brochure, pamphlets etc, which may be published by developer/ owner inviting public at large to purchase flats and properties”. Experts said if the builder defaults in repaying the bank after the flats are sold and the building occupied, the bank could take over a portion of, say, a garden plot in the society. The society may also find it difficult to get the land conveyed in its name.

The RBI has also warned banks to curb the “excessively risky lending by exercising selectively and strengthening loan approval process”. “Banks should ensure that borrowers should have obtained prior permission from government/statutory authorities for the project, wherever required. While the proposals could be sanctioned in normal course, the disbursements should be made only after the borrower has obtained requisite clearances,” it said. Total loans taken by builders in India is estimated at over Rs 90,000 crore.

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