Large housing finance companies are urged by NHB to create a framework for early warning signals.

DELHI: As the regulator for mortgage lenders a framework for early warning signals (EWS) has been requested by NHB from home financing companies with asset sizes of over Rs 1,000 crore in order to stop financial fraud and keep accounts from becoming non-performing assets.

In a recent circular, the National Housing Bank (NHB) stated that an analysis of the frauds reported by the housing finance companies (HFCs) had shown that seller impersonation, the submission of false documents proving one’s income or employment, the submission of false title deeds, and a conspiracy between the builder and borrower were the main causes of accounts being identified as fraudulent.

Additionally, it has been noticed that such flaws are only discovered when the borrower stops making EMI payments after the loans have been disbursed, according to NHB.

“Therefore, it has been decided that the HFCS should adopt an Early Warning Signals (EWS) Framework so that an alert is triggered before the account becomes a non-performing asset (NPA) or is declared a fraud account,” it stated.

The NHB circular further stated that the credit monitoring process in the HFCS systems must be connected with the EWS tracking process so that it becomes a continuous activity.

The EWS framework will persuade HFCS to consider fraud threats in their risk management procedures.
The NHB has requested that the home financing businesses present the circular to their boards for discussion and to develop a plan for implementation.

By April 1, 2024, the system must be in place, it stated.

An indicative list of EWS for retail individual borrowers has been supplied by the NHB. Included in this are things like “loan disbursement done without satisfying all pre-disbursement conditions,” “occupation of the borrower has changed,” “unfavorable developments in the sector in which the borrower is employed,” and “company is unable to contact the borrower during credit monitoring.”

An illustrative list of EWS for corporate and project loans has also been offered by the regulator.