Loans and liabilities

THE Supreme Court’s ruling on improper loan sanctions by banks underscores a crucial flaw in India’s banking practices — the lack of robust title verification for mortgaged properties. This oversight jeopardises public funds, risks fraudulent transactions and compromises financial stability. Highlighting a specific case, the SC pointed out that loans sanctioned on properties with unresolved title disputes could have been avoided with rigorous title searches. Currently, banks rely on empanelled lawyers for these reports, but the absence of standardised guidelines has resulted in inconsistencies and errors. The judgment has rightly directed the Reserve Bank of India (RBI) to collaborate with stakeholders to establish a uniform mechanism for title clearance reports.

The SC’s proactive stance emphasises three significant aspects. First, it recommends criminal liability for bank officials who approve loans based on defective title reports, ensuring accountability within the sector. Second, the RBI must standardise the fees and quality benchmarks for title reports, discouraging cost-cutting measures that compromise accuracy. Lastly, banks are urged to prioritise diligence, preventing fraud and safeguarding public interest.

The directive also acknowledges practical challenges, such as the status of older or under-construction properties that often lack certificates. These grey areas necessitate legal clarity to balance regulatory compliance with operational feasibility. As loans against property represent a significant portion of banking portfolios, especially for small and medium enterprises, the sector must act swiftly. The RBI’s adherence to the SC guidance is essential not only to restore public trust but also to fortify the financial system against vulnerabilities. In implementing these reforms, India’s banking sector has an opportunity to set a precedent for due diligence and accountability in property-backed lending. The message is clear: public funds cannot be collateral damage in the race for profit.