LOAN AGAINST PROPRTY (LAP)

POLICY AND PROCESS

(MAR-2023)
Pradeep Totre (Product Manager)

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Contents

1. INTRODUCTION: ................................................................................................................................................... 3
2. PRODUCT WORKFLOW SUMMARY:..................................................................................................................... 3
3. POLICY PARAMETERS: .......................................................................................................................................... 4
4. RISK PARAMETERS AND MITIGATIONS: .............................................................................................................. 8
5. DEVIATIONS: ......................................................................................................................................................... 8
A. Deviation Authority Matrix (As per Bank/NBFC Policy) ........................................................................................ 8
Deviation on CIBIL Score, LTV, CPV, FCU, Pricing, Valuation etc. ................................................................................. 8
B. Legal Deviation Authority (As per Bank/NBFC Policy) For Example: .................................................................... 9
Annexure 1 - Negative Profile ....................................................................................................................................... 9
Annexure 2 – Properties not acceptable as collateral .................................................................................................. 9
6. PLAN TO ON-BOARD DIFFERENT VENDORS: ..................................................................................................... 10

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 1. INTRODUCTION:

There is huge potential in the market for LAP business and this is one of the best product to covert unsecured portfolio
into secured portfolio, apart from this historically the NPA rate is very low for this product. Post Covid-19 Pandemic
most of the Banks and NBFCs are moving towards ‘Secured Lending’ and LAP is one of the best option. Current
outstanding of LAP biz in the market is approx. 8.4 lakh crores out of which 3.5 lakh crores belongs to NBFC segment
with 15% YOY growth and the average yield is 16%.

2. PRODUCT WORKFLOW SUMMARY:

Detail Process: (This is a digital process and will be applicable if the system is in place)

Stages Activity Name Application Used User Activities (Description)

Sourcing Sourcing Mobile Application RM Fills basic details, address, KYC details, etc.

Pre PD - Credit
Web Application CU Verifies the application, uploaded documents,
Analysis

Personal discussion with the customer, cross examines all the

Pre- Sanction PD PD Mobility App CU
details
Activity
Check if all details are updated in PD Tab, update mandatory
PD PD Mobility App CU fields like Challenges, Mitigation, Brief Case detail &
Recommendation Notes.

Legal Technical Initiation, Update collateral documents,

Sanction
Post PD Web Application CU Posidex/AML initiation. Send the application for
Process
Recommendation/Sanction to CCU/ACH/RCH/ZCH

Update ROI, PF, INSURANCE, OTHER CHARGES, Insurance,

Post Sanction Post Sanction
Web Application CU Property and Security details, NACH/e-NACH. Updates Legal and
Activity modification
Technical report details, PSL Details. Send to OPS for verification.

OPS Manager Verify all details and sends back if any query else disburses.
Disbursement Verification Web Application
(CPC) DB Mode: Cheque/DD/Fund Transfer

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 3. POLICY PARAMETERS:

PARAMETERS NORMS
Type of Loan Loan against Property(LAP)
Type of customersegment Self Employed Individuals, Partnership Firm and Companies

Only Resident Indian allowed. Income earned or property owned by NRI not allowed.

Age of Borrower& Co-  Minimum 25 years at the time of application

borrower  Maximum 70 years at the time of loan maturity

# As per product variants Bank/NBFC can change the age criteria.

Borrower/Co-borrowers  Co-borrower is mandatory for loan
 All property owners to be on loan structure
 No minor can be a borrower
 Co-borrower can be immediate family members viz spouse, parents, brother, son, or
daughter (unmarried):
 Wherever business entity is non-individual, then that entity should be made as
main applicant & all partners / shareholders to be co-borrower.
Ownership of Property  Individual owners can be joint owners of property provided they are part of
immediate family viz. spouse, son, father, mother, & brother
 Minor cannot be owner / co-owner of the property
 Property owned by married sister cannot be considered
 HUF / Trust / Society cannot be owner / co-owner of property
 If property is owned by pvt ltd company, ROC search is mandatory and also
charge creation in favour of BANK/NBFC is mandatory.
Locations
Before selecting any locations following factors must be considered:
a) Bureau inputs on portfolio performance and penetration
b) Delinquency ratio
c) Presence of relevant competition in the market
d) Positive market reference
e) Type of properties, customer profiles – salaried/self-employed

KYC Norms As per Bank’s KYC Policy

Documentsrequired  App form completely filled with signature of applicant(s) across the photograph
 KYC document as per the policy of the Bank
a. ID proof (as per Bank’s KYC policy)
b. Address Proof(as per Bank’s KYC policy)
c. Signature proof
 Business entity proof (as per Bank’s KYC Policy)
 Residence/office ownership proof
 Years in Business Proof
 Business address proof
 12 month bank statement required
 GST return
 Collateral Documents
Documents may be changed as per product variants
Minimum amount Loan As per the Banks/NBFC target segment and risk appetite

Maximum Amount Loan As per the Banks/NBFC target segment and risk appetite

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Minimum Tenor 06 months

Maximum Tenor Upto 180 months

Rate of Interest 7% to 24% p.a.

Processing Fee 1% - 3% of the loan amount + GST

Foreclosure 2% to 4% of O/S + applicable charges

Penal Charges 24% p.a.

Cibil Criteria Minimum cibil score of applicant and co-applicant should be 700. If cibil score is -1, then Equifax /
Highmark report to be pulled.

Depend on Bank/NBFC policy.

Stability Norms  In Self-employed cases, business vintage to be min.3 years. Minimum 2 years at the current
premises, if rented and Minimum 6 months at current premises, if owned.
 Residence stability should be 1 year if rented. If owned, ownership proof to be
documented and no minimum stability is required Residence or office should be
mandatorily owned.
Personal PD is mandatory for all cases by underwriting team at applicant’s office/factory.
Discussion
Contact Point Mandatory for BCM to visit both residence and office and should be positive
Verification (CPV)
Tele-verification Tele- verification of Applicant / Co-applicant by Credit Manager is mandatory.

Legal Clearance A positive report from empanelled advocate is mandatory Note :

 Legal report should be in standard format and self-attested by advocate on each page
 All copy of title docs given by customer for legal to be self-attested by property owner.
(first and last page)
Technical Clearance A positive report from empanelled valuer is mandatory Note:-
 Technical reports should be self-attested by valuer on each page
 Property site photograph to be attached and signed by valuer
 All copy of title docs given by customer for technical report to be self-attested by
property owner.
 Copy of approved plan is mandatory.
 All collateral to be visited by credit team.
FCU check FCU check is mandatory for all cases. Bank statement need to be sampled in all cases and
FCU should be positive.
Banking Norms
 12 month banking to be documented
 Average bank balance for any month
 Only Current account is allowed. For proprietor & professionals, savings account is also
allowed. Cash Credit and Overdraft a/c are not to be considered for ABB calculation.
Collateral:
1. Self-Occupied Residential Property (SORP)
2. Self-Occupied Commercial Property (SOCP)
Collateral Type 3. Rented Residential Property ( RRP)
4. Rented Commercial Property (RCP)
5. Mixed Used Property
6. Industrial Property

Rented Property – Maximum tenant allowed is 4. Tenants should not have occupied the property
for more than 3 years and this need to be verified by FI /credit manager & documented. Rental
agreement and NOC of tenant to be mandatorily documented

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 If property is owned by company, then charge need to be created with ROC

PARAMETERS NORMS
Valuation Criteria
 Two Valuations to be done
 Lower of two valuations to be taken unless the variation in the two valuations is less
than 10%. In case variation is less than 10%, average of two valuations can be considered
for loan eligibility.
 If variation between 2 valuations is >20%, then Credit Manager will visit collateral and
cross verify with Broker/market intelligence data to assess the gaps. In such cases, 3rd
valuation to be initiated and average of lowest 2 valuation will be taken
to arrive at loan eligibility

Properties not As per Annexure 2

Acceptable assecurities

Property Age & Property Area  Maximum age at loan maturity should be 35 years
 Residual age of property, as established by technical, at the time of loan application
should be minimum 10 years.
 Residential Property – minimum area should be 400 sq.ft
 Commercial property – minimum area should be 250 sq.ft

Property Type LTV

LTV Norms
SORP
SOCP
RRP
50% to 70%
RCP Differs as per property type
Mixed Property with RCP / SORP+VRP
Mixed Property (SORP+SOCP) Or (SOCP+RRP)
Mixed Property (SORP+RRP)

a. State Technical norms have to be followed. A detailed note to be made state-wise for
the list of documents required for clearing a Gram Panchayat property.
b. Joint ownership properties allowed but with blood relation only. All the property
owners to be on the loan structure
c. Vacant property and plot collateral not allowed.

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PARAMETERS NORMS
Laminated property  Fresh cases with laminated property documents not accepted for disbursal.
Documents On receipt of Property Papers – if property papers found to be laminated
o Customer to accept in writing for de-lamination of property
o Delamination to be done in the presence of customer
o NOC to be taken covering the clause that BANK/NBFC will not be responsible
if property papers are destroyed while doing lamination

Negative Area  Property not to be located in negative area. (Updated list to be published by Risk
Department from time to time).
 Customer residence & business set up not to be in negative area.
 Property not to be situated in community dominated area /old city area where
access to property & salability is a concern.
Any exception for Negative area to be approved by Concern authority

Geographical limits  Property to be located within 50 km radius from the nearest BANK/NBFC branch located in
the city approved for LAP product
 Residence and office to be located within 50 km radius from the nearest BANK/NBFC
branch located in the city approved for LAP product
 PDC / ECS mandate is to be given from bank account which has local clearing within geo
limit.

Disbursement  The Bank a/c no. of the borrower / end user entity needs to be captured and the
disbursement cheque needs to be drawn with the Bank a/c no.

Validity of approvals  Sanction would be valid for a period of 30 days only from date of sanction, subsequent to
which re-credit required
 Legal reports validity – TSR updated 15 days prior to disbursement
 Valuation reports – 90 days from the date of valuation
 Credit checks – FCU, CPV, Cibil etc – 30 days
Note: Fresh documentation (income and banking) required for re-credit. FCU of fresh
documents need to be done
Negative Profile As per Annexure 1

Deviation from Deviations need to be approved by appropriate authority as per deviation grid.
Policy norms

Mortgage Process Registered mortgage - wherever applicable is created as per applicable stamp duty.

Collection/ Basis customer’s choice NACH/SI will be used to collect monthly EMIs
Repayment

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 4. RISK PARAMETERS AND MITIGATIONS:

S.N. Risk Description Mitigations

1. RM collects the required documents as per login

Incomplete Customer Information: checklist. After verification of original documents, RM
Incomplete or incorrect customer information of inputs information in Mob App for applicant/co-applicant.
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applicant / co-applicant / guarantor may result in 2. On the basis of data captured CIBIL and Highmark will
incorrect CB check and incorrect sanction triggered in system.
Further, Credit Underwriter (CU) also verifies the details.

Wrong Eligibility Calculation: (Collateral Risk) Correct customer information should be captured by RM in
Inadequate verification of customers eligibility the system (KYC, Age, Address, Business details, Collateral
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which may result in sanction of loans to ineligible details, etc.) and same needs to be verified by Credit
customers and financial loss. Underwriters.

Security Creation:
3 Charge not registered with ROC which may result CU should ensure the same and track as part of his tracker.
in regulatory non-compliance

Security Release: 1. Central Ops Team should ensure the removal of lien /
Non removal of lien/Non updation of CERSAI on discharge against registered MODT.
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the property documents may result in reputational 2. Central Ops Team should update the CERSAI and
loss. Property Cibil.

5. DEVIATIONS:
A. Deviation Authority Matrix (As per Bank/NBFC Policy)
Deviation on CIBIL Score, LTV, CPV, FCU, Pricing, Valuation etc.

RCM ZCM NCM

S.N. Deviation Description Remarks
Powers Powers Powers

If there is no
credit history/ -1
CIBIL Score up to 580 forPrimary/secondary Cibil score then
1 No No Yes RCM can sign off
applicant
for Primary &
Secondary
Applicant

CIBIL Score - Primary/Secondaryapplicant - 580

2 No Yes Yes
to 710

3 CIBIL Score - Primary/Secondaryapplicant - 710 Yes Yes Yes

to 740

4 CIBIL Score > 740 Yes Yes Yes

5 LTV more than norms by up to 5% Yes Yes Yes
6 LTV more than norms by up to 10% No Yes Yes

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 B. Legal Deviation Authority (As per Bank/NBFC Policy) For Example:

Waiver of document Authority Condition for approval

Original Title deed in name of borrower (N) Head- Credit Registered mortgage and some other process
to be decided on case to case basis
Original prior title deed (N-1) wherein ZCM & Zonal
ownership of borrower > = 13 years Legal Head Original title deed of borrower is a must

Annexure 1 - Negative Profile

 Astrologers
 Arms & Ammunition Dealers
 Advocates
 Antique dealers
 Builder
 Cable operators / Video Library / Video Parlours
 Commission agents, brokers & used vehicle dealers
 Cyber Café / Internet companies
 Marriage bureaus
 Motor training schools
 Pawn Brokers
 Petrol Pumps
 Plantation / Agriculture companies
 Judges
 STD booth owners
 Real estate agent
 Stock Brokers
 Film industry / TV film making related such as actors/Producer/Directors.
 Policemen
 Politician / Journalist

Annexure 2 – Properties not acceptable as collateral

 Chawl
 Gaothan
 Pagdi
 Cinema halls
 Factories/Industries
 Banquet halls
 Schools/Colleges / Library
 Hospitals (But, personal clinic is allowed), Nursing Home
 Agricultural property
 Plot
 Vacant property
 Bar / Pub / club property

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 6. PLAN TO ON-BOARD DIFFERENT VENDORS:

The following vendors must be on-boarded in accordance with the product requirements. These vendors will
be on-boarded by the concerned stakeholders of Bank/NBFC as per vendor on-boarding procedure.

Before on-boarding vendor’s background verification will be done by the Bank/NBFC officials along with
following checks:

 KYC
 CIBIL
 AML
 Other related docs

Vendors Internal/External Roles and Responsibilities

Vendors for Property Valuation External Valuation of the properties offered as collateral to bank/NBFC.
Panel Lowers External Legal documents verification.

FI/CPV External Field Verification- Neighbour check etc.

Personal discussion with the customer, cross examines all the
Vendors for PD Internal/External
details

For API Integration and to fulfil the other IT related

IT Vendors External
requirements

NOTE: This is only a sample document as per Bank/NBFC, product parameters may vary.

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