Whether license is mandatory for giving loan on mortgaged property

Shivendra Pratap Singh


High Court Lucknow


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In India, the act of giving loans, especially on a commercial scale or in the nature of a business, is subject to certain regulatory frameworks. Here are a few points to consider:

  1. NBFCs & Banking Institutions: Any institution that is in the business of lending money, like banks and Non-Banking Financial Companies (NBFCs), requires a license from the Reserve Bank of India (RBI).
  2. NBFC-MFIs: There’s a specific category of NBFCs known as NBFC-MFIs (Micro Finance Institutions) that are also engaged in the business of lending to weaker sections of the society. They also require registration with the RBI.
  3. Private Lending: If an individual provides a loan to another individual (like a personal loan), it does not typically require a license. However, if someone is regularly giving loans to multiple individuals and it appears to be more of a business activity, then it could attract the attention of regulators.
  4. Real Estate & Property Mortgages: For loans involving the mortgage of property, the lender needs to ensure that they follow the legal formalities required for creating a valid mortgage, as per the Transfer of Property Act, 1882.
  5. State Money Lenders Act: Many states in India have enacted Money Lenders Acts that govern the practice of money lending by individuals or entities that are not banks or NBFCs. If someone is in the business of lending money in such states, they might be required to get a license under the respective state’s Money Lenders Act.
  6. Usurious Lending & Consumer Protection: Charging excessively high rates of interest could be deemed usurious, and the lender might face legal implications. The borrower can also seek protection under consumer protection laws if they feel they’re being exploited by the lender.

If someone is considering lending money on a mortgaged property or any other asset in India, it is crucial to consult with a legal professional familiar with Indian banking and financial regulations. They can guide on the specific requirements and ensure that the lending is in compliance with relevant laws.