NOC from exisitng banker for loans
Ronald
(Querist) 24 August 2010
This query is : Resolved
Dear All,
Most of the banks have as a part of their loan or credit facilities sanction letter or agreement that "the customer has to take consent in writing from the exisiting banker for availing loans or entering into borrowing agreement with other banks or financial institutions"
1) Is this valid as it amounts to Monopolistic trade practice?
2) Is there any law which prohibits other banks/ financial insitution from funding the customer overlooking the exisiting bankers sanction letter?
s.subramanian
(Expert) 24 August 2010
1. It is not a monopolistic practice at all.
it is adopted only to prevent frauds.
2. It is not the law but only a prudent bankin gpractice.
Daksh
(Expert) 25 August 2010
Dear Ronald,
I fully concur with Mr.Subramanian.
Best Regards
Daksh
Ronald
(Querist) 25 August 2010
Dear Mr. Subramanian/ Mr. Daksh,
Thanks. Understand that it is a prudent banking practice.
But, donot understand 1. How will it lead to fraud? 2. If a customer's exisitng bank is demanding that the customer should not take a loan from others as they will not give NOC for the same, though the customer is eligible over and above the obligations with his banker, is it not monopolistic practice?
Regards,
Ronald
James Arun
(Expert) 25 August 2010
Ronald,
It is good to give more details. With the info you gave, our advise will also be sketchy.
If you have taken a loan (say a home loan) from Bank A, then nothing prevents you from taking another loan (say a car loan) from Bank B, without the consent of Bank A. But before Bank B sanctions your car loan, it will ensure that you have the capacity to repay both loans simultaneously. If your income is substantial and not a burden on you, then usually the Bank B will not have issues.
However, if you want to take a home loan on the same property with Bank B, then Bank A has to give you an NOC, which is usually done after you prepay the loan with Bank A, which you have taken from Bank B.
This is not monopolistic. This is a good business practice to prevent some fraudulent people from taking loans in excess of the property value.
Companies also take loans like this by "charging" or "creating a charge" on assets with their bankers, and unless an NOC is given, a second loan on the same asset cannot be taken by the borrower..
Hope this helps..
James
Ronald
(Querist) 26 August 2010
Dear James,
Thanks.
Would like to clarify my question with the following example,
* Bank A, sanctions a Term loan for Customer 1 for an EMI of X amt.
* The terms of the sanction as mentioned by Bank A in sanction letter/ agreement is that the customer should take consent in writing before taking any loan from other Bankers.
* Now, Customer 1 is approaching Bank B, for another loan for a different purpose say for example a construction loan for his office.
* As per Bank B, Customer is eligible for X+Y emi and has sanctioned the loan for Y EMI.
* Now as per the sanction terms from Bank A, Customer 1 is approaching Bank A for NOC to take loan from Bank B.
* However Bank A is refusing to give such a letter and instead asking the customer to avail the same loan from them.
* In this case the Bank A is ensuring that the customer is bound to Bank A only by insertingg such a clause in their sanction letter/ agreement. Is it not a monopolistic practice?
masood ausaf
(Expert) 26 August 2010
Obtaining the NOC from the existing creditors is now a days a practice of the bankers. The basic purpose of this NOC is that the banker wants to ensure that the property which is to be encumbered is not already over charged so that his loan which is to be secured by the said property may not be in jeopardy. Secondly the NOC giving Banker before giving such NOC evaluates the said property and ensure that his loan is fully secured and in case it gives the NOC his loan will not be effected by creating any further charge on the said security.
Ronald
(Querist) 27 August 2010
Dear Masood,
Thanks. I believe you have not understood the crux of the problem.
While i am accepting that it is a prudent business practice, now a days all pvt ltd / ltd companies create ROC charge for the assets/ properties which are charged to them.
Hence the question was on the legality of the clause put forth by bankers, that the customer has to take NOC from them and using it as a leverage to stop the customer from going out for loan products.
Harinarayan R. Tripathi
(Expert) 28 August 2010
Dear Ronald
In my view I state as under:-
1. The lender(s) wants to keep maintained their charge on the property of the Mortgagor in future also and hence they are keeping the clause of getting NOC prior to create further charge.
2. Every new lender wants to keep its charge on the encumbered property in line with the existing lenders otherwise the existing one will get prior rights for realization of its debts and the new lender shall get subsequent rights, in case of default by the Borrower.
I hope this will meet with your requisitions.
