What changed
Previously, only housing projects required developers to disclose property mortgage to the bank in public advertisements. Now, the same rule applies mutatis mutandis to all Commercial Real Estate (CRE) projects financed by banks.
What it means for you
Banks lending to CRE projects must now include a clause in loan terms mandating developers to disclose the mortgage in all marketing materials. This reduces information asymmetry for buyers and protects banks' security interests by making encumbrances public.
What you must do
- Update loan agreements for CRE projects to include a mandatory disclosure clause for mortgage in all advertisements and brochures.
- Verify that developers comply with the disclosure requirement before disbursing funds for CRE projects.
- Train credit and monitoring teams on the extended scope of the August 2009 circular to cover commercial real estate.
- Review existing CRE loan portfolios to ensure compliance with the new disclosure norms.
Who it affects
Scheduled Commercial Banks (excluding RRBs), CRE developers and borrowers, Bank credit and monitoring departments
When did this circular take effect?
The circular was issued on November 3, 2011, and was effective from that date for new CRE financing arrangements.