Home loans, car loans, other consumer loans under the scanner.

The annual inspection exercise of the Reserve Bank of India this year is focussing on commercial banks' retail loan books. The regulator is looking into home loans, car loans and other consumer loans to check whether there is any 'bubble' building up in the industry.

Frauds perpetrated by unscrupulous retail borrowers have not escaped the central bank's eye. Any irregularity being unearthed during the inspection may dent the growth in retail loans which has been the main driver of non-food credit of the banking sector in recent years.

The RBI has already called upon banks to tighten their existing systems and controls to prevent the occurrence of frauds. Wary of the fact that in the fight for market share, and that this could have impacted the quality of retail loan appraisals, the central bank has asked banks to exercise caution while extending housing, consumer and retail loans.

The caution has to be seen in the backdrop of banks going the whole hog on expanding their retail portfolios in the last couple of years. Banks' retail loan books have grown by about 30 per cent year-on-year over the last two years.

The possibility of lending institutions facing a home loan bubble has prompted the central bank to set up two committees to tackle the problem head-on.

While one committee is looking into the modus operandi of frauds and how to tackle them, the other is seeking to sensitise overzealous banks, some of whom were extending loans for 100 per cent of the value of the property purchased, on the pitfalls facing them.

The regulator has noticed that the most common modus operandi adopted for availing of credit facilities was by submitting forged/ fake/ stolen documents in respect of properties offered to banks as securities.

It has come across instances where the same property was offered by some borrowers as security to different banks by submitting fake title deeds. The properties which were mortgaged to banks, were found to be non-existent.

Loans were granted to persons without verifying their antecedents. As a result, they were found to be non-existent in subsequent follow up action. Documents such as, deeds, income tax returns, salary certificates etc., were all found to be fake/fictitious.

The chartered accountants who had purportedly issued or verified the documents were found to be non-existent. Builders had defrauded banks by pocketing the housing loans which they managed to obtain in the names of fictitious persons by submitting forged documents.

Car and consumer loans were obtained by submitting fake invoices and were misappropriated without creating charge on the security.