Loan Fraud

The fraudsters would soon be more difficult to raise loans for the same property with the budget set aside Rs 25 crore for a central electronic repository.

The central electronic record (ERC) is a database of all mortgages and banks that have a charge. Thus, in the future when the borrower wants to avail a loan against the property , an apartment or a house, the lender will be able to check if anyone has had a charge on the property.

Today, most home loans are fraud in cases where borrowers with multiple loans using falsified documents. In some cases, fraud is perpetuated by the sponsor sells an apartment under construction at two different buyers. Earlier this month, ET had reported that the government may announce plans to establish such a registry to reduce home loan fraud.

All banks and housing finance companies provide data on title and home loans at the central registry. Next time a bank processing a loan proposal at home, it will first check with the Central Registry if the title is clear and not registered to any other entity, or any other bank has it taken as a guarantee.

It is estimated that the banking sector has generated over Rs 400 crore-loan fraud at home. These issues could be addressed once and register is formed. From now on, securitization and reconstruction of financial assets and enforcement of security (SARFAESI) Act of India has allowed the provision to establish a central register. Thus, the government will issue an opinion that will be the first step towards the formation of the registry. However, the budget did not give more information on other stakeholders in the registry. IBA has already submitted a feasibility report on the issue.