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Banks Get the Noida Jitters


It seems banks are looking to approach RBI for a special dispensation for the money lent to homes in Noida Extension where the supreme court has said that the land should now be given back to farmers.

“We will need the regulator’s indulgence on the matter. This is an extraordinary situation necessitated by court rulings,” said the chairman and managing director of a public sector bank.

The article goes on to say  that the fact of nearly 70,000 apartments in Noida is uncertain, and that bankers haven’t yet heard of defaults. That’s because people are still hoping there will be a solution – if the builders ditch them, they will ditch the banks as well.

While the loan defaults are currently just around 1,000 cr. according to the article, it might get worse if builders themselves default. Which I don’t get – how can builders get loans for the same land while selling it to people who have taken loans for, what seems to be, the exact same property?

Secondly, the RBI behaving leniently should be out of the question? Why? Because the banks see some losses, and want to hide them? If these are real defaults, banks MUST take them on to their books. We have seen enough leniency given during the economic crisis, and now it’s becoming a moral hazard – for legitimate losses, banks are running to the RBI and crying “MOMMY”.

Hopefully, RBI isn’t like the US Federal reserve which is currently unable to respond because it is polishing the banks’ shoes and will soon wash their clothes and put their babies to bed.

In a larger consequence, is this court judgement bad? or anti capitalist? NO WAY. This is basically affirming property rights. The GNIDA authority had no business acquiring land forcibly from farmers and giving it to builders. Tata has no business asking the West Bengal govt. to acquire land for the Nano plant. We need to have property rights enshrined in our constitution; no matter what, no one should be allowed to acquire land forcibly. Even for roads or such; the concept of eminent domain is reprehensible, and involves corruption (why a road over my land and not his?). We shouldn’t let it happen.

Jerry Rao says it well in a piece in the IE :

The issue in India rests with the illegitimate definition of public purpose and the Machiavellian manner in which re-zoning (which drives up land prices) is done after the land has been acquired from powerless citizens at absurdly low rates. The proposed new law with endless arguments about whether forcible acquisition for a factory or a mall is in order after 70 or 80 per cent of the land has been acquired by the powerful corporation/ developer is a deliberate attempt to confuse the issue in order to continue to support crony capitalist behaviour. The only fair solution is to have an extremely narrow definition of public purpose and to re-zone land usage before so-called development activities are started, not afterwards. Better still, restore property as a fundamental right so that citizens can go to courts to fight an executive branch which is hand-in-glove with “citizens with disproportionate influence”.


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