Economic Highlights
New
Delhi, 3 December 2010
LIC Housing Fraud
FREEZE BUILDER HOME LOANS
By Shivaji Sarkar
In 1994 the then Housing Minister
Sheila Kaul announced the Government’s decision to introduce “mortgage housing
scheme” at an award function and raised hope among millions. Nobody knew then that
the provisions made for the poor and middle class would be manipulated by some
realty corporates in liaison with the public sector LIC and bank officials to
siphon off funds for jacking up housing prices.
No wonder, the myth of the housing
price bubble has been busted albeit a bit too late. Even in its recent report the
UN Conference for Trade and Development expressed grave concern over the
unaffordable housing prices in India.
Whereby, the shortage from 60 million dwelling units now stands at 70 million
units.
Undoubtedly, the market operated by
manipulators has mastered the art of fleecing possible buyers. Since it has no
regulator, the builders charge exorbitant “maintenance fee,” in many cases
almost equal to that of the monthly loan instalment. It is a pity that the
needy have been left, by the authorities, open to fleecing.
In this scenario a non-functioning Government
only bothered about the so-called growth remains oblivious to the actual
problems. What had started as the Harshad Mehta stock scam in 1992 has spread
its tentacles to different areas from where public funds could be easily
laundered.
The LIC Housing Finance (LICHF) scam
involving top financial executives of LIC, Bank of India, Central Bank of India
and private sector Money Matters Group and 21 other companies has shaken the
confidence of not only those seeking housing loans but also of all depositors
and insurers, whose money is being laundered without his permission.
The CBI plea --- it is not a fraud
and “only involved bribery and corruption” --- is simply untenable. Clearly, it
is a fraud and breach of trust of the worst kind. It demands exemplary and even
death penalty because the officials have murdered the aspirations and hopes of
millions. The officials, if the allegations are true, should be made to pay the
amount that they have laundered. The companies and their owners and directors
also need similar punishment so that nobody ever dares manipulate any public
fund.
Nobody knows how much has been
siphoned. But it must be several thousand crores. This demands reviewing of the
RBI monetary policy. It has been repeatedly pointed out that squeezing the
money market would add to inflation, raise cost of borrowing and further stoke
inflation. In a tight monetary situation those “capable” look for such easy
manipulations. It is time the interest rates, including on commercial loans,
are brought down.
Besides, the RBI has of late been
too lax with banks and monetary institutions. It has allowed them to recklessly
raise their fees to tide over non-performing assets (NPAs) --- unsecured or
lost loans or money lost in fraudulent transactions like the LICHF scam. The
moot question: Whether the regulator is working for the depositors or for the
not-so-honest banking sector?
The RBI has been promoting a strange
rule that puts penalty for pre-payment even if it is after ten years. It
penalises the common investor but the fraudulent realty firms need not bother
as they pass on their burden to unsuspecting prospective buyers.
Particularly as the LICHF scam is
not easy to decode. Officials conversant with the law and rules have had every
opportunity to pose as “innocent victims misled by the realty companies”. It is
not that simple. It speaks of a wider nexus.
Significantly, politicians help
builders get land, and use their clout to convert agricultural and forest lands
for development. In most cases, proper documentation is not done and kickbacks
to bankers have become common. The developers give high cuts ranging from one
to six per cent of the loan sanctioned, particularly in the RBI-ordained tight
liquidity regime. The developers are also said to gift their ‘accomplices’ apartments
and other benefits.
The LIC is stated to have bailed out
a number of realty companies’ IPOs (initial public (equity) offers). Many of
them apparently got loans from LIC, which had also been buying realty stocks in
the secondary market. Needless to say, the nexus must be wider and not limited
to LICHF. The probe has to spread to other wings of the PSU, including LIC
Mutual Fund and mutual fund operations of different PSU banks.
Importantly, this scam is much more
than simple gratification. A few masterminds in the public and private sectors
have been successful in almost creating parallel finance units to jack up
company profiles, prices at the stock exchange and deprive the common buyer of
an opportunity to get easy housing loans. Whereby, it was an “impeccable”
system operated through middle men like Money Matters. This company used to
help get the builders and less credit-worthy borrowers’ loans through payments
under the table and also roll over old loans on easier terms. This helped the
realty firms hold on to high prices even if the property remained unsold.
The realty firms would borrow from
banks against the money they would receive from buyers as an when flats were
sold. This is called future receivables. They also took construction loans,
often shown as funded through benami loans
from organisations like LICHF.
Pertinently, banks and housing
finance companies are not authorised to fund acquisition of land. Many a times,
the borrowings shown as construction loans were in fact channelled to buy
lands. This was one of the reasons for the rising land prices. In reality, the
public sector banks and FIs were busy fuelling an anti-people measure.
There is no gainsaying that the
recent steps would lead to a thaw in sanctioning of housing loans. The RBI
should consider suggesting at least a one-year moratorium on loans for buying
houses from builders. The loans should be extended only to genuine housing
cooperatives of individuals, Government housing boards and similar official
organisations and individuals. The moratorium would ensure that the builders
face heat as banks recall dubious loans. It would also put on hold realty IPOs.
True, some projects might get
delayed. This is welcome if the system has to be cleaned to help actual buyers’
posses what is being built for them. Many housing projects built on such dubious
funds in Delhi & NCR have become speculators paradise even though the real
buyers do not buy properties situated at odd areas. The Government also needs
to have an open discussion on the problems and pitfalls in the housing loan
area. The LICHF is merely a symptom of a disease. It needs proper treatment and
if required, even surgery. ---- INFA
(Copyright, India News and Feature Alliance)
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