Banks seek SC clarity on loans against uncertified ancestral properties

Several banks are gearing up to approach the Supreme Court to address a new hurdle in property-backed lending, The Economic Times reported on Friday. This move comes in response to a recent Supreme Court ruling prohibiting loans against properties lacking completion and occupancy certificates (CCs and OCs), which has raised concerns for situations involving older properties that often lack proper certifications.

Supreme Court’s ruling on CCs and OCs

Last month, the top court mandated that financial institutions can only sanction loans against properties if the borrowers present valid CCs and OCs. These certificates ensure that a building complies with safety, legal standards, and the approved construction plans. While the ruling aims to protect public interest by ensuring property safety and regulatory compliance, it has posed significant challenges for banks.

Older buildings lack certificates

The ruling complicates lending against older buildings, ancestral properties, and heritage structures that typically do not have these certificates. Moreover, several Indian states do not issue OCs, adding to the issue. Given the importance of loans against property (LAP) as a financial product, banks are now seeking clarity from the Supreme Court on how to proceed.

Uncertainty around properties under construction

Another concern is whether the ruling affects lending against properties under construction, as CCs and OCs are only issued upon project completion. Banks and non-banking financial companies (NBFCs) are awaiting a clear stance from the court to avoid potential legal ambiguities.

According to the report, some top private and state-owned banks have already escalated the issue to the Indian Banks’ Association for guidance. The industry is considering legal avenues, including filing applications with the Supreme Court to seek clarity or modifications to the ruling.