What will happen if State Governments Pledge their Buildings to Banks?Today the front page news on The Tribune with title as Cash Crunch: Punjab to mortgage buildings astonished me as free fall of rupee against dollar was afresh in the mind. When individuals or even big corporate go to the bank to borrow money against mortgage of immovable property the banker ask the basic questions:
1. What is your source of income?
2. What is your repaying capacity to pay installment and interest?
3. What is the projected income?
4. Are the projections based on past trends or are imaginary?
5. Based on projections DSCR that is debt service coverage ratio is worked out and checked if it is comfortable to repay the loan.
6. Is the immovable property easily sell able and realizable in the market.
7. What is the purpose of the loan.
8. Is it a takeover from other banker who wants to get rid of the NPA (Non Performing Loan) - as in the present case loan is sought to repay the overdraft taken from the center.
9. Can the bank take possession of the property if loan is defaulted.
I think such state governments may establish overdraft limits with such easy to approach banks (thank God it is not Private Bank controlled by Multi Nationals - who would have granted the loan on much soft conditions to secure exclusive dealing certificate from the borrower that is State Government).
It is a thought provoking news as some RTI activist might like to know the name of the Bank (not disclosed in the news item) and terms and conditions of sanction as such loans can jeoparadise the interests of the depositor hard earned money kept in the Banks.