RBI against PPP model for central loan registry

The Reserve Bank of India (RBI) has expressed its reservations on the government’s proposal to set up a computerised central registry for keeping records of loans mortgaged against securities in a public private partnership (PPP) mode.

The banking regulator is of the view that a government official should head the registry and that a PPP model will not be suitable for running it.

The registry, once operationalised, would help check frauds in the sale and mortgage of properties by providing details to the bank or the buyer at the click of a mouse. “Both the Indian Banks’ Association (IBA) and the finance ministry are proposing PPP for the registry. However, RBI has some issues on the way we want to structure it. So, we have suggested that it could be a special purpose vehicle (SPV) headed by a government servant,” said a senior government official.

IBA’s chief legal advisor MR Umarji said as the database would be similar to a corporate registry, private sector participation would bring in the expertise required to handle electronic records.

The registry is proposed to be implemented in two phases. In the first phase, all the securities of banks will be registered to help the lenders verify the documents while giving loans against properties. In the second phase, the registry will provide a link to the database of state governments and municipalities. A customer planning to buy a house will get the details about the property by paying a small fee. Work on the first phase has already started. And, states like Karnataka, Tamil Nadu, Andhra Pradesh, Madhya Pradesh and Maharashtra have even begun computerising their records in preparation for the second phase. The concept of a central registry was introduced in the Section 20-26 of the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act. The Act came into force in 2002, but the government has not yet notified the above sections on establishing the registry.

A central registry is maintained in most countries. In India, the absence of such a registry has led to borrowers taking loans from other banks using duplicate title deeds. Also, there have been complaints of banks losing the deeds and/or not returning the same in case there is any other loan outstanding.