Date:14/05/2005 URL: http://www.thehindu.com/2005/05/14/stories/2005051416140300.htm

Karnataka - Bangalore

Norms tightened for home loans

P. Manoj

Banks make approval of layouts by Bangalore Development Authority mandatory

BANGALORE: Banks have tightened the norms for approval of home loans in the aftermath of the Arkavathy Layout order by a single judge Bench of the High Court and a couple of key decisions taken by the Bangalore Development Authority (BDA) that have thrown the real estate sector into complete disarray.

In an internal memo, the BDA has cautioned banks and housing finance companies against advancing home loans unless the layouts are approved by it. In turn, the corporate offices of many banks have issued circulars to their branches intimating that housing loans should not be processed unless the layouts have BDA approval.

In a recent case, the State Bank of India (SBI) rejected a housing loan proposal at Tanisandra (adjoining Arkavathy) on the grounds that it was not BDA approved. "The land on which the house was to be constructed was converted from agricultural land into use for residential purposes after May 20, 2003. As per the circular issued by the bank, this required BDA approval," a SBI official said.

Business likely to be hit

The housing loan business of banks is expected to be hit badly if the uncertainty continues. The thriving real estate business, driven mainly by the IT boom in the city, has seen phenomenal growth in the housing loan portfolio of banks. For instance, the housing loan business of SBI associate State Bank of Mysore jumped 71.41 per cent to reach Rs. 870.52 crores during fiscal 2004-05. Whereas, the housing finance disbursements of Canara Bank grew by 46.44 per cent during 2004-05 to reach Rs. 4,194 crores.

The BDA has also warned the public against purchasing plots and apartments that does not have its approval. It has also told the public not to be misled by claims made by developers that their layouts have a No Objection Certificate (NOC) from the BDA.

"NOC does not imply approval. It merely says that as on the date of granting NOC, the land is not acquired or notified by the BDA for any of its schemes. But, this does not prevent the BDA from acquiring the land in the future, in which case, it has the powers to demolish the structure which has come up on such unauthorised land/layout," a BDA official said.

Experts' view

However, experts say that this may not be so easy, particularly in cases where houses have come up on unauthorised layouts. "In such cases, the lenders will have the first mortgage on the land and property and the BDA would have to issue notices to all the parties concerned, file a civil suit and pay compensation before evicting the residents and acquiring/notifying the land," a city-based legal consultant pointed out.

To discourage the sprouting of unauthorised layouts, the Revenue Department recently issued a notification making BDA approval mandatory for registration of all fresh cases of land. Prosecution is also being contemplated against builders who are developing houses on authorised layouts, the BDA official said.

With many upcoming layouts coming under a cloud for want of BDA approval, land prices of approved layouts have sky rocketed bringing it out of the reach of the common man. The BDA reckons that speculators are taking calculated risks to invest in layouts that are not approved with the hope of making a killing when the clouds clear up in the future.