One Story Raghuram Rajan is Choosing Not to Speak About

How banks are mocking the mortgage laws, earning interest income on mortgaged homes and patronising builders who don’t deliver....

1. Sixteen years ago when I started working as an immigrant professional in Delhi, it was cool to buy a flat. Builders were figuring out how to inspire people like myself to save a little and go for that big kick – buy a house. It was easy, they had to price a house at 5 to 10 times of one’s annual salary and it could sell well. Rest was the job of a banker.

We the buyers did not ask many questions, we just called our parents and told them we were willing to act on something that would take our parents years to decide. Something they saved a life time’s earnings for and something that was done post or near retirement.

Builders knew it well and bankers knew it very well. They rose to the opportunity and created a flourishing industry that thrived on EMI paying professionals, gasping to find a home, a symbol of success in the new town and a recipe for social respect.

2. It was a rat race, a race against every successful professional around you, and was bound to leave you feeling like a rat at the end. I exactly feel like one because my house has not been delivered. In 16 years I bought houses twice. The first was sold to make way for the second but the second time I couldn’t buy some luck.

While I blame the builder I am not willing to forget my banker either. The banker made it easy for me and builder stopped caring for me. The interest still goes to the bank, the builder ran away with the principal and I am left on the street mapping my margins.

3. Banks loved us – the rats. We walked into their cage but it was not without a saving clause. We could walk out whenever we wanted to, it was called a mortgage. It simply means I was given a loan under a condition. The condition is that if I stop repaying my loan, my house will be taken by my bank.

So be it. I don’t need that house anymore. I could draw inspiration from Americans of 2007 and stop paying my EMI. The banker can take it. Take it from my builder and let me live peacefully. Who is stopping me from doing that? The banker again. While I was busy living and earning my space, my banker grew smarter. He along with all other bankers organised a credit score agency called CIBIL. If I stop paying, CIBIL will find out about me in seconds and ban loans to me for a long time. It could be for rest of my life. So I cannot exercise my mortgage.

4. Who can allow me to exercise my mortgage? The RBI can. In our country RBI pretty much governs the retail banks. RBI’s job is not just to adjust interest rates. It is also responsible for banks’ credit policies. Where banks invest and how they lend is something RBI should monitor. If banks are funding for properties that builders will deliver and customer will pay for, how can RBI is not actively monitoring? Billions of Indian rupees are blocked in millions of delayed houses and that money should have been reinvested in the economy. This money has gone out of the hands of the builders. Where did it go? Is this not hurting the economic system that RBI watches so closely?

Forget the RBI; it is perhaps busy documenting its celebrity governor’s next press statement. What is our parliament doing? Our political leaders are rather quite about dealing with this mess. The new real estate laws are not yet applicable on old projects and customers continue to suffer.

5. The delay in possession is a fraud. Shall we not have our government taking control of these businesses? We have had a history of nationalisation. Banks and corporations have been acquired by the government in the past for various reasons. In case of Satyam – the IT giant which misreported its numbers – the government came out to rescue investors and investment environment. Builders which are not delivering are not much different from Satyam. They just have bankers’ protection and banks in turn have RBI’s affiliation.