Bank staff must not overlook systems and guidelines
Ratnakar Bank and Bank of Maharashtra had sanctioned home loans of ₹2.50 crore and ₹1.30 crore, respectively, to Rathee. The banks claimed that they had sanctioned the loan on the same property at different times after verification and due diligence.
However, when Rathee failed to maintain financial discipline, the banks started the process to take possession of the property and also gave out an advertisement in newspapers. But both the banks later got to know from Allahabad Bank that the same property had been mortgaged with it as well.
Investigations revealed that Rathee has started a firm named Shagun Enterprises in 2013 just to cheat banks, and had taken loans from different banks by using forged property documents. The police are probing the involvement of bank officials, if any, and others.
Not following guidelines
This is an example of how easily banks can be defrauded as they do not follow the set guidelines. According to the Annual Report of the Reserve Bank of India, banks reported 7,363 fraudulent cases involving ₹1,38,422 crore in 2020-21. The Annual Report has not suggested any strategic measures to contain frauds in banks and whatever has been suggested is just general guidelines.
Frauds in banks happen when someone in the banking system compromises the procedures prescribed. It is just like traffic accident. It happens when someone does not follow the traffic rules.
Banks take documents of buildings, factories, etc., as security. If the original title deeds of the property is not available then a registered mortgage is created by executing a mortgage deed, which is registered with the Registrar of Properties of the particular State government. This means that creation of such mortgage can be verified by government authorities (Registrar of Properties).
When title deeds are available, a mortgage is created by depositing original title deeds to the banks, and this is also called equitable mortgage. There are some basic conditions for creating an equitable mortgage, like depositing the title deeds at the notified places with an intention to create mortgage. When a borrower mortgages his property and deposits the title deeds with the mortgage lender, an equitable mortgage is created.He then signs an agreement with the lender to create such a mortgage.
Originally such equitable mortgage was not supposed to be registered at the Sub-Registrar’s office. However, many State governments have made registration of the memorandum (which describes the intention to create mortgage) compulsory to augment their income. For the National Capital Region, it is mandatory to register mortgages with the Central Registry of Securitisation, Asset Reconstruction and Security Interest of India (CERSAI).
So in this case, when there was equitable mortgage, is should have been registered with CERSAI. It is not known whether the first financing bank that got the mortgage made an entry in the books of CERSAI. If not done, it should be considered a major violation. If such entry was done but the subsequent banks ignored it, then the fault line lies with them. It is also possible that both the first financing bank and the other banks failed to register.
When banks overlook the systems and procedures prescribed, they are putting the hard-earned money of the depositors at risk. Banks are dealing with other’s money and they cannot be allowed to be negligent.
The writer is a retired banker