New Delhi: At least three major Indian banks have said they will seek legal advice from the apex court on a recent judgment that barred banks from providing loans on any property that does not have a CC or an OC. This decision has raised concerns, especially for older buildings, most of which do not possess these essential documents.
Several banks in India are planning to approach the Supreme Court to get clarity on a recent ruling that restricts lending against properties unless they have completion certificates (CCs) and occupancy certificates (OCs). This decision has stirred concerns, especially for older properties, many of which lack these critical documents.
The Supreme Court’s ruling requires borrowers to provide valid CCs and OCs for banks to approve loans against their properties. These certificates ensure that a building follows safety guidelines, legal norms, and approved construction plans. While the intent behind this rule is to protect public interest and ensure compliance, it creates major challenges for banks that depend heavily on loans against property (LAP) as a key financial product.
Challenges for Older Properties
This decision complicates lending for older buildings, ancestral homes, and heritage properties that often don’t have these certificates. While in many states of India occupancy certificates aren’t issued at all, making things even more difficult. Since LAP is an important product for banks and NBFCs (non-banking financial companies), there’s a growing need for clarification on how to handle these situations.
Another issue is how the ruling applies to properties still under construction. CCs and OCs are only issued after a building is completed, leaving banks and NBFCs unsure if they can offer loans against these properties. The financial sector is now waiting for clear instructions from the Supreme Court to avoid any legal risks.
Both private and government-owned banks have sought guidance from the Indian Banks’ Association and are considering legal steps, including filing petitions with the Supreme Court for modifications or clarifications.
Why LAP is So Important?
Loans against property have become a vital financial tool, especially for small and medium businesses. For NBFCs, small-ticket LAPs make up over 60% of their business loan portfolios, while for banks, they account for about 15-20% of home loan portfolios. These secured loans are especially popular because of rising defaults in unsecured loans.
To comply with the ruling, banks may now ask borrowers and builders to provide the required certificates. If these documents can’t be produced, borrowers might face loan recalls.
Given the widespread lack of CCs and OCs, particularly for older or inherited properties, banks are hoping the Supreme Court will allow some flexibility in how they apply these rules. Such discretion would enable banks to continue lending while ensuring safety and regulatory compliance.
