In response to a Supreme Court ruling, banks are seeking clarification on loan sanctions against properties without completion and occupancy certificates. This impacts older and ancestral buildings as many lack these documents. The ruling complicates lending for properties under construction, prompting banks to explore legal options for compliance and clarity in their lending practices.
New Delhi: In response to a recent Supreme Court ruling, several banks are preparing to approach the apex court for clarification regarding loans against properties lacking completion and occupancy certificates (CCs and OCs). This development stems from the court’s mandate that financial institutions can only sanction loans if borrowers present valid CCs and OCs, which certify that a building complies with safety and legal standards.
Challenges with Older and Ancestral Properties
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The Supreme Court’s decision aims to ensure property safety and regulatory compliance. However, it presents significant challenges for lending against older buildings, ancestral properties, and heritage structures that often lack these certificates. Additionally, several Indian states do not issue occupancy certificates, further complicating the situation. Given the importance of loans against property (LAP) as a financial product, banks are seeking clarity from the Supreme Court on how to proceed under these circumstances.
Implications for Properties Under Construction
Another area of concern is the impact of the ruling on lending against properties under construction, as CCs and OCs are typically issued only upon project completion. Banks and non-banking financial companies (NBFCs) are awaiting a clear stance from the court to avoid potential legal ambiguities in such cases.
Industry Response and Actions
Some leading private and state-owned banks have already escalated the issue to the Indian Banks’ Association for guidance. The industry is considering legal avenues, including filing applications with the Supreme Court to seek clarity or modifications to the ruling. LAP has become a vital financial product for small and medium enterprises seeking business loans. For NBFCs, small-ticket LAP advances constitute over 60% of their business loans, while for banks, LAP loans make up around 15-20% of their home loan portfolios. These loans are preferred for their secured nature, especially in light of rising defaults in unsecured lending.
Potential Measures for Compliance
To adhere to the new ruling, banks may require undertakings from borrowers and builders to provide the necessary certificates. Failure to furnish these documents could lead to loan recalls. However, considering the diverse circumstances where CCs and OCs may not be available, banks are hopeful for some discretionary leeway in their lending practices.
The banking sector awaits further guidance from the Supreme Court to navigate these challenges effectively, aiming to balance regulatory compliance with the practicalities of property lending in India.
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