Use of land as collateral: Do Land Records comprehensively reflect this information?

 

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For an emerging economy like India, access to finance is critical for economic growth. According to the recently conducted NABARD All India Rural Financial Inclusion Survey (NAFIS) in 2016-17, overall incidence of indebtedness in the surveyed households is 47.4 per cent and average outstanding debt per indebted household is Rs 91,407. Around 32.7 per cent of the respondents in NAFIS survey reported that they resort to borrowing in the wake of crisis/emergency situations. From lenders’ perspective, role of collateral is quite critical and land is one of the most commonly used collaterals. Rajeev et al. (2011) brought out the role of land as a security for accessing credit through formal (institutional) sources – 59 per cent of formal loans were given against land as security. Narayan and Chakraborty (2019) used the AIDIS data to calculate the proportion of institutional credit with mortgage of immovable property. The authors observe that within agriculture, the percentage of households using land as collateral is only 22.5 per cent.

Though instances relating to loans against land/property vary across states, there are no reliable statistics in this regard. One alternative to gauge this information is to use the land record copies for those parts of the state that are mapped and have land records. These land record copies, commonly termed as Record of Rights (RoRs) ideally should be carrying information about the mortgages instances on the respective land parcels.

As per the NCAER Land records and Services Index 2020 (N-LRSI), 28 out of 37 States/UTs record their mortgages information in the remarks column of the RoRs.  Though this number seems to be high, the caveat here is the accuracy of this information. While it is crucial that land records carry important information about important aspects related to property ownership information, it will be meaningless if the information presented is not comprehensive and does not represent the actual situation.

In this regard, we analysed land records of 6 selected states in terms of the mortgage information captured in these records ­- Uttar Pradesh, Uttarakhand, Madhya Pradesh, Chhattisgarh, Himachal Pradesh and Gujarat. Our analysis suggests the mortgage information in land records suffers lack of clarity and accuracy. Land records of Himachal Pradesh are relatively better in terms of the details that it exhibit.  

With regard to remarks about mortgages, the information can be available on three fronts –

1.      mortgage value,

2.      mortgage area

3.      Name of owner/s who have mortgaged the land

The information pertaining to mortgage amount is available in mostly all the states that have been considered for the analysis, except Chhattisgarh and few sample RoRs for Gujarat. Name of the person(s) taking loans are given in the RoRs of only in HP, UP and Uttrakhand. Information regarding area that has been mortgaged is available only in case of Himachal Pradesh. It is either available in the form of exact area that is mortgaged or is assessed through the information about the number/name of owners mortgaging land, area that they are mortgaging and their share in the entire khata. It is important that all these key pieces of information is available in the RoR for estimating the precise area that is mortgaged. For remaining states in the sample, entire area of the Khata is assumed to be mortgaged. In case of UP , though names/numbers of owners with loans and their share in the khata is given, there is no mention about the proportion that they have mortgaged and hence total khata area is assumed to be mortgaged (irrespective of their shares). 

Table 1: Extent of mortgage information in RoRs

S.No.		HP	Uttarakhand	UP	MP	Chhattisgarh	Gujarat
1	Mortgage value	✓	✓	✓	✓	X	✓
2	Name of the owner/s taking loans	✓	✓	✓	X	X	X
3	Area mortgaged
3a	Option 1: Exact area given	✓	✓ (in some cases)	✓ (in some cases)	X	X	X
3b	Option 2 : calculating area mortgaged
	Individual share of owner/s	✓	X	✓	X	X	X
	Area mortgaged by individual	✓	X	X	X	X	X

 

Overall, except in the case of Himachal Pradesh, it is difficult to assess the exact area that is mortgaged through a RoR copy. Consequently, the RoR copies are not reflective of the actual and updated information with respect to loan taken against a land parcel/property.

There are other practical issues with respect to mortgage information presented in some of the RoRs that we analysed. For instance, in some of the RoR copies of UP, names that are provided in the remarks column for mortgages differ from names of the owners of that particular land holding. In some instances, there is a remark in the RoR about mutation and the loan is taken by the person in whose name the property is now mutated but the owner(s) name is still unchanged. Such inconsistencies hamper the usability of RoRs.

Land records should be a reflection of the actual situation with respect to a land holding it be form a basis for dispute free transaction. A comprehensive land record is expected to reduce information asymmetry and hence reduce the transaction costs.  However, with these challenges in terms of incomplete information, it will never reach that desired goal. The solution in this regard is to ensure strong linkages between the land records and financial institutions and standardizing the format in which the details are reported in the textual records across all Indian States/UTs.

 

References

Narayanan, S., & Chakraborty, J. (2019). Land as collateral in India. Economic and Political Weekly.

Rajeev, M., Vani, B. P., & Bhattacharjee, M. (2011). Nature and dimensions of farmers’ indebtedness in India and Karnataka. ISEC working paper no. 267.