Rs 9,000-cr bad debts due to Delhi demolitions

November 16, 2006	(Be the first to rate this story!)  Loading ...
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Banks may lose between Rs 7,200 crore and Rs 9,000 crore as bad assets on housing loans disbursed over the last four years, with the Municipal Corporation of Delhi (MCD) systematically demolishing illegal property.

Delhi witnesses sales of around 25,000 residential properties in a market of about Rs 12,000-15,000 crore. On an average, about 60% property value is financed by banks. There are around 50 banks operating through 2,000 branches in Delhi.

The problem has arisen since banks, in a rush to beat rivals, have financed loans without proper documentation.

Legally, banks are supposed to release loans after ensuring that title deeds, the form A (map approval), form C (water), form D (electricity) and the form E (completion certificate) issued by the MCD are in place. But most banks and housing finance companies have been financing properties without the form E, and in some cases, the form C and D.

Some realty experts like DTZ say the monies at stake can be higher. “At least 1,000 houses with an average value of Rs 1.5 crore are sold every year in south Delhi alone. Banks fund between Rs 60 lakh and Rs 1 crore per property, taking their total annual exposure to about Rs 600-Rs1,000 crore,” says Ankur Srivastava, MD, DTZ.

Legal experts are of the opinion that banks cannot even claim outstanding loans when an asset is demolished.

CB Richard Ellis India head Anshuman Magazine says, “Banks have been financing without MCD’s completion certificates for several years, but with the RBI becoming stringent, things are likely to be better.” After the sealings started, the RBI issued a circular, asking banks not to disburse loans without proper certification from local authorities.

Not just housing loans, loans against property (LAP) given by banks may hit their books as well. The LAP market is considered to be almost twice the size of the home loan market.

Source: www.financialexpress.com

News Published Under:   Delhi, Banking and Finance |

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