LICHF : A case of Graft & Misuse of Powers – says CREDAI

The resurgent Indian real estate market which has the capacity and capability to positively impact the GDP is always made to oscillate between periodical ups and downs. The current faith in the Indian economy has been exhibiting a positive trickle down effect in the Indian real estate market which, regrettably, is somewhat thwarted again with the discovery of certain malpractices carried out by some individuals and maybe also by some corporates relating to obtaining loans. In this discovery, some of the senior PSU Bank officials and finance broker firms (middle men) are held for alleged graft and wrong doings. It is necessary to appreciate that this is a straightforward case of “GRAFT” and illegal actions by some. The guilty need to be brought to book at the earliest but this cannot be termed as a “Housing Scam” or a systemic failure.
In fact it may be termed as a case of: “Bribes , Graft & Kick-Backs for loans”
As per RBI statistics the Total Gross advances to CRE (Commercial Real Estate) by the Banking Sector as on 31st March 2010 is 32,71,361 Crores out of which CRE Exposure is 1,37,799 Crores which constitutes to just 4.2% and Impaired Credits is 2,299 Crores amounting to only 2.8% of total gross NPAs of 81,813 Crores.
The systems of funding are very much in place and all project fundings are meticulously scanned and secured and often backed by the personal and/or bank guarantees. Thorough due diligence is done. The Real estate funding plays a pivotal role in generating revenue for the banks as the interest is higher than any other businesses.
Considering the above, the episode under reference is related to the actions and processes in the Financial and Banking sector rather than in Housing or Real Estate. The Department of Financial Services (DFS) also has indicated that these are isolated instances of alleged illegal graft. DFS has further conveyed that as per information available with them, the asset quality in these cases have not been impaired.
“Such episodes, if not presented in the correct perspective cause a negative market sentiment that in turn unnecessarily impedes the pace of development resulting in shortages. This is turn would hurt home buyers as shortages lead to rising prices. In fact this shows that it would be wise to develop a transparent online mechanism to grant loans for Real Estate Development projects in the absence of which discretionary sanctioning may lead to breeding grounds for graft” says Mr Santosh Rungta, President, CREDAI.