REALTY FRAUDS WITH BANKS

In recent years, the real estate market has helped increase realty frauds and other phony real estate financing by the Banks. The recessionary trend in present realty scenario invariably has brought in many unscrupulous and unsavory Builders/Developers who, in connivance with certain corrupt Bank Executives and dishonest officers, secure bogus loans by allegedly executing spurious documents supported by fudged Balance Sheets, highly inflated/false data, fabricated information/statements and try to make some fast money through illegal routes.

Builder - Advocate - Chartered Accountant - Bank Executives - Branch Managers/officers nexus is believed to be the root cause of Banks falling prey to realty frauds involving non-viable loans in multi-crore of rupees resulting in many fold increase in non-performing assets of Banks. Quite a number of times, the approvals come from a single branch of a Bank for sanction of loan to a blue-eyed Builders/Developers of that Bank, are the results of lack of any thorough scrutiny of the project by the Bank officials.

It is worthwhile to point here that even Banks are under pressure to disburse maximum amount of loans to reach the given targets as per directives from various authorities and consequently, some of them conveniently skip the required in-depth scrutiny for sanction of loans.

Banks are supposed to be more vigilant and enforce appropriate due diligence before sanctioning loans to the unscrupulous Builders/Developers. Bank Officials hand in hand for occasional pecuniary benefits, later face the music of investigation against them for Realty frauds front also because of the dereliction of duty by some advocates and chartered accountants. When a fraud comes to light, Bank Officials are either charge sheeted or summarily dismissed or put behind bars. However, no action is taken against the top executives of the Bank or the professionals hired by the Builders/Developers.

It has also been noticed where a Bank Manager is transferred or posted from one branch to another, such immoral clients follow these Bank executives to continue their illicit relations to avail more and more loans in multi-crore of rupees which are sanctioned or got sanctioned from HO by such dishonest Bank Managers who act as carriers for the top bosses of that Bank.

Complaints about mortgage frauds and predatory lending practices in Banks have also grown many-fold as the economy has soured and increasing numbers of Realtors face financial strains and even foreclosure. Reserve Bank is taking mortgage frauds seriously with assigning the task of investigations and prosecutions to the Central Bureau of Investigation Dept. and Banking Section of Economic Offence Division against the corrupt Bank executives and dishonest Bank Officials for rendering undue favours to the Builders/Developers and acquiring disproportionate Assets to their salaried income.

There are numerous cases registered by Central Bureau of Investigation Dept. and Banking Section of Economic Offence Wing against the erring Bank executives/Managers for abusing their official positions and entering into a criminal conspiracy and fraudulently sanctioning and disbursing various limits to the Builders/Developers on the basis of false and forged balance sheets thereby causing loss to the tune of multi-crore of rupees to their Banks.

There are umpteen numbers of such realty frauds with height of violation of the ground rules and guidelines of Credit Policies framed by the RBI where the project loans in crore of rupees have been disbursed without proper assessments, without adherence of sanction norms, with no proper verification of genuineness of title documents/balance sheets/data/projections and ignoring the viability guidelines of the Bank.

Banks have begun stress testing their realty assets as delinquencies in loan service payments begin mounting up and are now asking the Builders/Developers to lower prices to clear their piled-up Realty NPAs. Additionally, The Banks are reducing the moratorium period on loan repayment from 9-12 months earlier to just three months now as many banks have begun facing overdue on some of the past realty loans. This puts an indirect pressure on the Builders/Developers to sell off their projects quickly to start repaying their installments in default.

Distress sales have increased. Some Builders/Developers are resorting to discounted sales with attractive gifts for meeting liquidity requirements. Analysts have expressed concerns over the financial health of the Real Estate Sector. City-based retail broking firm, India Infoline, fears the liquidity situation of Builders/Developers could worsen further if banks refuse to refinance maturing debts of Real Estate Companies and maintain the credit freeze on their accounts.

Bankers are resorting to moral suasion, persuading borrowers to settle their overdue payments. However, despite such efforts, RBI said that subsequent to the AQR, gross NPAs rose 79.7 per cent year-on-year in March 2016. The net NPA of the Banks also increased sharply to 4.6 per cent in March 2016 from 2.8 per cent in September 2015. Public Sector Banks' net NPA was 6.1 per cent while the ratio for Private Sector Banks was 4.6 per cent. For the last financial year, the average was about 2.5 per cent of advances. Natural justice demands that disciplinary actions must be initiated to book the erring officials of the Banks in an expeditious manner.

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