Banks wake up to reality of estate companies laundering loans

Public sector banks in the city are verifying the credentials of realty companies seeking loans for land development to put a check on not only bad loans but even the banking system being misused for laundering tainted money. Recently, the Reserve Bank of India issued guidelines to public sector and private sector banks to scrutinise the background of realty companies and their directors, to prevent narcotics and crime-tainted funds from being laundered in the realty industry.

Currently, a number of public sector banks have hired the services of private security agencies specialising in background checks of individuals in the city. A large number of retired Indian Police Service officers who have worked with intelligence and economic offences agencies like Central Bureau of Investigation, Intelligence Bureau and Mumbai crime branch, are heading these agencies.

"A large number of public sector banks have hired agencies to conduct a background check on the credentials of loan seekers, especially realty players who are seeking high amounts of loans. A number of realty companies have built a facade of a legitimate business but are laundering crime and drug tainted funds in the business. There have been cases where public banks have refused a loan to some real estate developers on grounds that the company's financial background is dubious," said a former senior police official heading a security agency servicing some of the public sector banks on background checks for business entities seeking loans.

He added that some of the real estate developers avail of loans to legitimise their business whose financial backbone is drug and crime tainted money. By availing the loan, they launder the principal and interest amount by repayment of loan. There are also a few cases where developers laundering ill- gotten wealth of politicians and bureaucrats use political clout to avail of loans, which invariably turn into bad loans.

Some of the leading private sector banks though have been seeking the assistance of private security agencies to verify the bonafides of certain loan seekers and their companies, they have also devised e- connectivity with a syndicate of multinational and foreign banks, to run a background check on the loan seeker from the realty industry.