Collateral checks before project loan disbursement
A bank may sanction a ₹25 crore project term loan based on the project’s viability and ability to service debt. If the sanction requires property security, the borrower must also satisfy the specific title, valuation, land use and security conditions before the relevant drawdown. These checks answer different questions: what is the property worth, who can grant the mortgage, and what other claims or rights could affect enforcement?
Valuation and loan-to-value limits
Chapter IX of the RBI Commercial Banks – Credit Risk Management Directions, 2025 requires a board-approved valuation policy and independent, professionally qualified valuers. A commercial bank must obtain at least two independent valuation reports for properties valued at ₹50 crore or more. The bank sets its empanelment criteria. Where a separate Companies Act provision calls for a registered valuation, apply section 247 and the applicable registered valuers rules for that engagement. Do not assume that every bank collateral engagement is a Companies Act valuation.
| Measure | What to check | How a lender may use it |
|---|---|---|
| Market value | An estimate for an orderly transaction at the valuation date. Review comparable sales, access, lawful use and restrictions. | A starting point for policy limits; the sanctioned amount may be lower. |
| Realizable or forced-sale estimate | Identify the lender’s definition and the valuer’s assumptions about marketing time, condition and buyer demand. A shorter, constrained sale may bring a different price. | Apply the lender’s policy and any product-specific requirements. There is no universal 60–75% project LTV or fixed distress discount. |
| Circle rate, guideline value or ready reckoner | State schedule used for purposes such as stamp valuation. | Check statutory charges separately. A schedule value need not be the collateral’s market price. |
SARFAESI enforcement and sale notices follow the Act and the applicable enforcement rules. The steps and facts of a sale matter; there is no general guarantee that collateral will sell within 60 or 90 days.
Title search and supporting records
A bank may require a 30-year title search, a different lookback or a search to a sound root of title. Sections 54 and 59 of the Transfer of Property Act and section 17 of the Registration Act govern specified transactions and instruments. A chain can also include succession or a court order, where different proof may be needed. The Limitation Act has different periods and starting points for different claims; a 30-year search is neither a universal statutory rule nor a guarantee of title.
- Trace the owner’s right through the parent and link deeds, and obtain certified copies where needed. Record missing originals and investigate how they came to be missing.
- Compare revenue and municipal entries, surveys, boundaries, taxes and mutation records. Mutation is useful evidence of the public record; it does not itself confer title.
- Check the applicable land classification, permissible use, building approvals and any restrictions in a grant, allotment or lease. Verify conversion or planning records where required.
- Check the relevant registrar’s books and indexes, court and tribunal proceedings, insolvency records and public charges as appropriate. Check possession, access and third-party rights on the ground.
- Read every charge, restriction, consent and release against the exact property identifiers. Document the evidence and limitations of the advocate’s search.
Encumbrance certificates and their limits
Section 57 of the Registration Act provides for inspection of specified books and indexes and for certified copies. An encumbrance certificate reports the outcome of a search of the relevant registration records for the property description and period requested under the applicable state process. In the Karnataka form convention, Form 15 reports entries found and Form 16 is the nil result; use the local process and form names elsewhere.
A nil certificate means the search returned no indexed entries within its scope. It does not establish ownership or rule out missing records, indexing mismatches, unregistered claims, litigation, tax recovery measures or a mortgage by deposit of title deeds that does not appear in those records. Obtain the instruments behind entries and search the appropriate additional records.
CERSAI and mortgage documentation
The Central Registry under section 20 of the SARFAESI Act is a separate source of public notice. Search CERSAI using the asset and borrower identifiers available, and reconcile the result to the deeds and the prior lender’s records. Section 23 requires filing covered transactions as prescribed. The former 30-day creation deadline was removed from section 23 with effect from 24 January 2020, and the 2020 Central Registry amendment omitted rule 5. Verify applicable lender procedures and obtain proof of actual filing; section 25 retains a 30-day requirement for intimation of full satisfaction. Section 26D makes registration a precondition to enforcement under Chapter III. Section 26E addresses priority after registration; check insolvency rules, the validity of the security and the facts of any competing claim. ROC charge registration under Companies Act section 77, where required, is separate.
| Method | Creation and documentation | Local requirements |
|---|---|---|
| Mortgage by deposit of title deeds | Under section 58(f), delivery of title documents to the creditor or agent in a town specified by the section or notified by the State, with intent to create security. Verify custody and the nature of any accompanying memorandum. | Check the applicable state stamp, registration or intimation rules. Whether a writing creates the charge or records an earlier completed deposit can affect its treatment. |
| Simple mortgage by registered instrument | Sections 58(b) and 59 govern the simple mortgage and its form; for the ordinary bank transaction execute and register the mortgage deed with the requisite attestation. | Check the law and fee schedule for the jurisdiction and instrument. Stamp duty and registration charges are not uniform across India. |
Seven worked illustrations
1. Missing original in a Faridabad title chain
An auto components company seeks a ₹15 crore loan on a factory acquired in 2012. Its seller’s 1998 sale deed is missing in original. The two transactions are 14 calendar years apart; the issue is proof and custody of the earlier deed. Counsel can obtain a certified copy, investigate whether another lender holds the original and check registry and CERSAI records. A loss report, public notices allowing 15 days for objections and an indemnity may be requested by the lender after legal review. Those measures do not cure a title defect or guarantee disbursement.
2. A prior charge over a Surat showroom
A trader offers a showroom for a ₹3 crore cash credit limit. The EC is nil, but a CERSAI search shows a ₹45 lakh charge registered by an NBFC two years earlier. If both facilities were fully drawn for these stated amounts, the combined nominal exposure would be ₹3.45 crore; the charge entry does not establish today’s balance. Obtain the prior lender’s confirmation, determine custody of the deeds and verify release and satisfaction if discharged. If the prior charge remains, assess whether the sanction permits it and whether an intercreditor arrangement is needed.
3. A tax attachment after a factory mortgage
A company mortgages its plant in 2021. In 2023, the tax department attaches the land in connection with a ₹2.40 crore demand for AY 2018–19. Section 281 of the Income-tax Act, 1961 can make a charge ineffective against the tax claim if created during proceedings or after their completion but before service of the specified recovery notice, subject to its thresholds and exceptions. Adequate consideration without the specified notice, or prior permission of the Assessing Officer, may protect the transaction. Section 281 is not itself an attachment order. Verify the actual recovery authority and service dates, the lender’s knowledge, CERSAI registration and the applicable priority and insolvency rules. A later attachment date or a clean title report alone does not resolve priority. For matters governed by the Income-tax Act, 2025, check section 499 and the transition provisions.
4. Converting five acres for a Maharashtra cold store
A company plans a cold-storage facility on five acres and requests an ₹8 crore loan. Under Maharashtra Act LVII of 2025, amended sections 42 and 47 use the planning route where the proposed use is permissible under the applicable plan or regulations; prior Collector permission for the change of use is not required in that case. The planning authority checks the development or building proposal and collects the applicable one-time premium. Five acres is about 20,234 m², above the 4,000 m² threshold for the 0.5% rate for a new conversion, based on the applicable current Annual Statement of Rates value. The loan amount is not that value. Check tenure restrictions, exemptions, the sanctioned use and the resulting revenue entry. Section 31(i) of SARFAESI excludes a security interest created in agricultural land from that Act; it is not a nationwide ban on mortgaging agricultural land.
5. A valuation shortfall on a ₹10 crore request
The promoter estimates ₹15 crore, but the independent report assesses ₹13.50 crore as the lender’s LTV base and estimates ₹9.80 crore for a constrained sale based on the access and marketing assumptions. The ₹9.80 crore estimate is about 72.59% of ₹13.50 crore; using exactly 72.5% would give ₹9.7875 crore, about ₹9.79 crore. A policy limit of the lower of 75% of ₹13.50 crore (₹10.125 crore) and ₹9.80 crore gives ₹9.80 crore, a ₹20 lakh shortfall. If a separate, documented credit limit reduces the facility to ₹7.50 crore, the funding gap is ₹2.50 crore. Additional collateral helps only if the applicable sanction conditions allow a higher facility.
6. An existing registered lease in Bengaluru
Assume a 30-year lease began on 1 July 2005. At the corresponding date in 2025, 20 years have elapsed and about 10 years remain to the 2035 anniversary, absent earlier termination or an extension. A Karnataka Form 15 showing the registered lease is a starting point: obtain the deed and examine rent, assignment rights, mortgage timing, consent and possession. A valid lease can affect the lender’s remedies; section 17(4A) of SARFAESI allows the Debt Recovery Tribunal to examine the claim under the statutory tests. A tripartite rental assignment and escrow may support lease rental discounting if agreed, but do not extinguish the tenant’s rights.
7. Disclosures for ₹45 crore in term borrowings
A company preparing Schedule III Division I accounts secures ₹45 crore in term borrowings by plant hypothecation and a land mortgage. Disclose the nature of the security and the applicable repayment terms in the borrowing note. Use the underlying asset and charge records to reconcile title deeds and security. CARO 2020 paragraph 3(i)(c), where applicable, addresses title deeds of immovable properties disclosed in the financial statements, subject to its lease exception. Paragraph 3(ii)(b) concerns aggregate sanctioned working capital limits over ₹5 crore from banks or financial institutions on the security of current assets; a ₹45 crore term loan does not trigger it by itself. Survey numbers, CERSAI IDs and ROC forms can support the audit file without all being mandatory fields in that note.
Borrower checklist
- Agree the property, search period and approval checklist with the lender.
- Assemble title documents and investigate any missing original, co-owner or heir claim. Obtain releases only from parties whose rights need to be addressed.
- Get the EC for the correct property, indexes and period. Read the underlying entries.
- Reconcile CERSAI and applicable ROC charges with prior lender records.
- Check permitted use, occupancy restrictions and approvals.
- Check municipal taxes, land revenue and property boundaries.
- Commission the valuation required by the sanction.
- Check tax recovery and litigation separately; obtain relevant notices and approvals.
- Match actual construction and possession to approvals and occupancy records.
- Maintain the collateral register, filing evidence and borrowing disclosures.
Frequently asked questions
1. How does a title deed deposit differ from a registered mortgage?
A deposit under section 58(f) depends on delivery in the specified or notified town with intent to create security. A simple mortgage is generally documented by registered deed. Check state requirements for each.
2. Does a 30-year search guarantee clean title?
No. It is a common lender instruction. Search periods, types of claims, applicable limitation periods and defects beyond the indexed records are separate questions.
3. Can a lender proceed if an original is missing?
Possibly. Counsel must investigate ownership, custody and competing claims. Certified copies and any lender-requested notices or indemnity are supporting evidence.
4. Can CERSAI replace an encumbrance certificate?
No. The Central Registry records covered security interests and related filings; the EC reports the applicable property registration search. Compare both and investigate gaps.
5. Why might the loan amount fall below a market valuation?
The bank sets credit and collateral limits and may allow for limited buyers, sale costs or a shorter marketing period. Read the valuation assumptions and the sanction terms.
6. What should accounting software track?
A borrower can use assureFinancials or its internal register to track assets, repayment terms and evidence of charges. Reconcile records to the actual filings and disclosures before year-end.
Sources
- RBI Commercial Banks – Credit Risk Management Directions, 2025, Chapters IX and X
- Transfer of Property Act, 1882, sections 54 and 58–59
- Registration Act, 1908, sections 17 and 57
- Limitation Act, 1963 and Schedule
- SARFAESI Act, 2002, including sections 17, 20–26E and 31
- Central Registry Amendment Rules, 2020
- Income-tax Act, 1961, section 281
- Income-tax Act, 2025, section 499 and transition provisions
- Slum Rehabilitation Authority Circular 240 on Maharashtra Act LVII of 2025 and non-agricultural premium
- Supreme Court, PNB Housing Finance Ltd v Manoj Saha, 15 July 2025
- Companies Act, 2013, sections 77 and 247 and Schedule III
- ICAI CARO 2020 guidance, with the notified Order
- Karnataka EC form convention, BBMP portal