Central Registry to simplify loan process

Ashish Gupta
explains how this proposal will make the due diligence process easier

The government is contemplating on setting up a Central Registry office for home loans. The Central Registry will equip the lender better to make a fair assessment of the risk undertaken while providing finance against property, thus making lending easier and safe.
The country is moving closer to a Central Registry for equitable mortgages. Once it is in place, it will be virtually impossible for someone to raise loans twice against the same property. The establishment of a Central Registry is a necessary step to maintain data relating to charges created on any property.
As of now, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act in India has enabled the provision to set up a Central Registry. Thus, the government will have to issue a notification which will be the first step to the formation of the registry.
The Central Registry for equitable mortgages will cover only those properties against which an individual or an entity has taken a loan. In its report to the government, the Indian Banks’ Association (IBA) has proposed that initially the Registry will register immovable items like properties. The IBA has also said while banks will have the ownership of the Central Registry, the government will have to appoint a registrar as the chief operating person to run it.
The forthcoming Union Budget is likely to contain a mention of the Central Registry. In response to the government’s proposal, the IBA has submitted a feasibility report on the Central Registry. Sources said commercial banks will set up a company under Section 25 of the Companies Act 1956 as a non-profit company.
Under the proposed system, all banks and housing finance companies will provide data on title deeds and home loan borrowers to the Central Registry. When the bank processes a home loan proposal, it will first verify with the Central Registry if the title deed is clear and not registered in any other entity’s name, or if any other bank has taken it as a security.
Besides being beneficial to lenders as well as to third parties, the establishment of the Central Registry will result in advantages such as a single source to verify charges on any asset created by any entity, data on charged and encumbered properties being made available in a transparent manner, charges or encumbrances created being easily traceable etc. Also, due diligence on sale and purchase of properties will become easier.
It is to be noted that the biggest challenge is that of setting up a system, whereby each plot of land and structure is verifiable and can be identified separately. Also, land records are not computerised in all the States. So, tracing title of properties is a complex problem. This requires a co-ordinated effort between the central and state governments.

Courtesy: Times Property 27th Feb 2010
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