Construction job

Probe into bank-builder nexus, which made patsies out of middle-class homebuyers, must be thorough  

Home loan subvention schemes – advertised as “book now, pay nothing till possession” – always smelt fishy. But many thousands of homebuyers fell for them in “hot” real estate markets. It wasn’t their fault. With home prices and rent shooting up in tandem, the option to not pay EMIs plus rent during the period of construction felt too good. It wasn’t long before buyers realised it was too good to be true. Many of them never got their houses but have been relentlessly hounded by recovery agents for repayment of loans. Now, more than 15 years after the schemes were first floated, CBI – under SC’s orders – is examining the role banks and other financial institutions played in perpetrating this massive fraud.

The charge of “fraud” is not applied lightly. Consider the structure of these schemes. Banks needed borrowers, and builders needed buyers. Both found what they were looking for in the common man. Ordinarily, banks release home loan payments to builders – on behalf of borrowers – after verifying the progress of construction. But under subvention schemes, they paid the full amount right at the start, “knowing very well that not even a brick has been laid at the site” – SC’s words, not ours. The understanding was that the builder/developer would pay EMIs till they handed over the finished house to the buyer, but this wasn’t an ironclad guarantee. The builder could default at will, and then the responsibility to pay was the buyer’s. 

Consider what happened at a Greater Noida project outside Delhi. In 2015, the builder received full payments for two phases of the project that had not been approved by the local planning authority. Which shows banks released crores of rupees without due diligence. They didn’t have to, because they had the best collateral possible in the form of middle-class borrowers. But was it just laziness and negligence, or did bank officials receive kickbacks? Those answers will hopefully emerge as the CBI probe progresses. Already 21 housing projects and the role of 19 lenders – including leading banks like HDFC and ICICI – are under the scanner. RBI has washed its hands of the case by declaring it cautioned against lending for subvention schemes in 2013. But given that the lives of middle-class borrowers were at stake, it could have taken a harder line. SC will have much to say in this matter when its inquiry is over. Meanwhile, govt’s silence on today’s rigged realty market is deafening.