RBI probing growth in banks' retail loans

Central bank on the lookout for a 'bubble'.

If you approach a bank for a car loan or a housing loan or even a loan to buy a gadget, don't expect the usual warm reception at your neighbourhood bank. Indeed, your bank could be a bit frosty. That's because the Reserve Bank of India (RBI) is probing the entire retail loan phenomenon.

Wary of the fact that in the fight for market share the quality of retail loan appraisals may have been compromised, the RBI has already directed banks to exercise caution while extending housing, consumer and retail loans.

Indeed, the RBI's annual inspection exercise is focusing on commercial banks' retail loan books. Sources said the regulator was looking into home loans, car loans and other consumer loans to check whether the phenomenon constituted a "bubble" that could burst.

"Frauds perpetrated by unscrupulous retail borrowers have not escaped the central bank's eye. If the RBI inspection unearths any irregularity, it may dent the growth in retail loans, which has been the main driver of the banking industry's non-food credit growth," said a banker.

The RBI warning has to be seen against the backdrop of banks going the whole hog on expanding their retail portfolios in the last couple of years. Banks' retail loan books have swelled by about 30 per cent a year over the last two years.

The possibility of lending institutions facing a home loan bubble has prompted the central bank to set up two committees to tackle the problem head on.

While one committee is looking into the modus operandi of fraudsters and how to tackle them, the other is seeking to sensitise overzealous banks, some of which were extending loans for 100 per cent of the value of the property purchased, on the pitfalls they face.

The regulator has noticed that the most common modus operandi adopted for availing of credit facilities is the submission of forged, fake or stolen documents for properties offered to banks as security.

It has come across instances where the same property was offered by some borrowers as security to different banks by submitting fake title deeds. Also properties mortgaged to banks were found to be non-existent.

Loans were granted to persons without verifying their antecedents. Subsequently, they were found to be non-existent. Documents submitted, such as deeds, income tax returns and salary certificates, were found to be fake.

The chartered accountants who had purportedly issued or verified the documents were found to be non-existent. Builders have defrauded banks by pocketing housing loans they managed to obtain in the names of fictitious persons by submitting forged documents.

Car and consumer loans were obtained by submitting fake invoices and were misappropriated without creating a charge on the security.