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Unusual home loan barrier: Your bank branch?

Is India a single country? This question is not asked with reference to any political context or even a common market, but in the relatively mundane context of home loans. You may wonder, what has that question got to do with home loans.

I was led into asking this question after a recent conversation with a friend. He works in Mumbai and wanted to buy a flat in Kolkata. Lately, he has been facing a problem while getting a loan. He approached a bank in Kolkata (since that is the city where he wants to buy his flat). The bank said that they would have given him the loan as his property and income papers were in order, but they asked him to visit their branch in Mumbai for the loan as he was working there.

When he returned to Mumbai after finalising the property in Kolkata, he approached the branch of the same bank only to be told that he should visit their branch in Kolkata. The reason given was that since the property is located in Kolkata, the bank would need to value the property before giving the loan.

The property in question was ready to move in, with all title documents and his loan eligibility was substantially higher than what he required. Even then, he was made to run around by the bank.

This incident was unusual and I decided to do some research as a number of people moving into other cities for work has been increasing significantly and this could be a common problem faced by them, for there are many who would want to buy a property in their ‘home’ city.

I had my team do a round of mystery shopping as home loan customers, and also spoke to the major home loan players. This is what we found. On speaking to them, each company said that such loans are not a problem as they have a common unified system across the country.

The situation on the ground, however, was a little different. From among the lenders we spoke to as mystery shoppers, only two private sector banks followed up on our initial call. It must be added that we dangled the bait of a Rs 70 lakh loan. Even the official we spoke to at a large public sector bank assured us that they would be able to facilitate the transaction subject to their normal credit and operational checks.

We also spoke to, and visited two other private sector banks and also a foreign bank. One did not respond after taking down the details. Those that did, told us that they could not carry out such a deal.

Next, we got in touch with a few direct sales agents (DSAs) of these banks whom we knew, and thought of getting this matter answered from them too. We spoke to one large DSA based in Mumbai, who serviced many banks. The feedback we received from him also corroborated our own findings as mystery shoppers.

Another Mumbai-based DSA whom we spoke to, and who did not work with the top two private sector lenders said that he would be able to get the transaction done, provided the project was pre-approved by any of the banks he worked for.

I also had an informal conversation with some of the private sector banks that had turned down our mystery shoppers, or did not show much interest in their requirement. What transpired out of this interaction was that none of them had an effective loan origination system across the country and unless the loan amount was big enough, the effort required to coordinate with their branch in another city was not justified.

Now each bank branch is driven by its own Key Result Areas (KRA). Legal checks and facilitation for any property that comes within the purview of another branch was not counted as a part of their KRAs and that is the reason such loans did not enjoy any priority.

What is boiled down to, was that a loan that was otherwise clearly falling within the credit and legal norms of the bank was being given up simply because of the mismatch of KRAs between the two branch offices.

By vayaM CS