Whose fault is it anyway?

"I had booked a flat in Delhi in 2009 for Rs 20 lakh. I got a loan worth Rs 14 lakh sanctioned for it. I made a down payment of Rs 6 lakh and the lender disbursed Rs 5 lakh. The builder has finally completed the construction and asked for the balance Rs 9 lakh, upon receiving which he will hand over the long-delayed flat. But now the lender is refusing to pay the balance amount as I work for a company that has been in the news for all the wrong reasons and has also been delaying salaries. The lender claims it has stopped disbursing loans to employees of our company and has asked me to shift my loan to another lender. The builder is threatening to cancel the allotment and meanwhile he is charging an interest of 18 per cent per annum. I have tried speaking to a couple of other lenders but none of them is favourably inclined. Please tell me if the lender is right in stopping the disbursement half-way through the construction process? I have been working for the same company for 10 years and it is not my fault that my employer is going through tough times. The market price of the same flat is around Rs 50 lakh and I will suffer a great loss if the allotment is cancelled by the builder."

This was an anguished cry for help on a television show that I was participating in and it immediately struck a chord with me. Many large corporate groups are going through hard times and the viewer (who had sent in this query) and other employees like him were part of the collateral damage which would be catastrophic for their financial lives.

This clearly spelt 'unfair treatment' by the lender concerned, especially since it had refused to give anything in writing about not making the disbursement. I checked the draft code of conduct laid down by the regulator (in this case, National Housing Bank or NHB) for all housing finance companies and it clearly required that, "Disbursement should be made in accordance with the disbursement schedule given in the loan agreement/sanction letter". NHB requires that the standard code of conduct (or better) be adopted by all housing finance companies (HFCs) but that particular HFC's code put up on its website was silent on this issue. Of course, the code of conduct allowed the HFC to ask the borrower to repay the full loan at one shot (called loan recall in legalese) in the circumstances mentioned in the loan agreement.

I spoke to a senior official of the lender and he admitted the issue but questioned me, what if you were a lender and it had been your personal money? Would you have made the fresh disbursement, knowing well that it might as well turn into a bad loan, given that salary payments were so irregular?

I countered by saying that as a industry person it made sense to lend the money to the borrower to help him get possession of the flat. And then help him sell it to not only repay my full loan but for him to be also left with some money in his hand. In any case, they were a responsible lender in a regulated market and they should disburse for that reason alone. If they felt the borrowers' profile had turned so bad that even their existing loan was at risk, then they should recall the loan. They had obviously not done so because they knew they would have to provide it as a non-performing asset (NPA) in their books. Reason: The borrower would not be able to pay back the existing loan in one shot without getting possession of the flat. Meanwhile, the borrower was running the risk of suffering a huge loss if the builder cancelled the allotment.

The only reason they could afford to ignore the code of conduct was because they knew that the grievance redressal machinery of NHB was slow and did not really penalise the lenders for any resultant losses. This true story illustrates that simply requiring lenders to make a code of conduct or regulating a charter of rights for customers is not going to protect consumer interests unless it is backed by concrete action in enforcing the code, with large penal consequences for not following the code.

Meanwhile, I advised the viewer to do a few things:

1) Talk to a local lender immediately who might charge a little more but be willing to take over the loan, pay off the builder and then dispose the flat.

2) Initiate the official grievance redressal machinery with the existing lender.

3) Use social media (Twitter/Facebook) extensively to highlight his plight. This particular lender was very protective of its brand reputation and would surely relent on this deserving case.

I am still waiting to know what happened but these steps would be a good guide for others caught in a similar bind. This example is also food for thought on the distance we still have to travel to really protect consumer interests.

The author is CEO, Apnapaisa