Banks step up loan recovery by auctioning mortgaged property

BL: Naga sridhar :4 june 2012

Sarfaesi Act is now being called into play even for dues as low as Rs 1.5 lakh

Think twice before defaulting on your home/property loan. You might simply lose your asset.

Unlike earlier, banks are now increasingly resorting to the use of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) 2002 to recover their dues.

MORTGAGING PROPERTY

The Act empowers banks and financial institutions to auction mortgaged residential/commercial property when borrowers fail to repay their loans.

The Act, which was enacted when the economy (including banking) was booming, has been rarely used to recover smaller dues; it can be applied to any loans/dues over Rs 1 lakh.

But now one can find many possession notices in banks/newspaper even for dues as low as Rs 1.5-2 lakh.

“This is because of the worrisome increase in the non-performing assets and the Reserve Bank of India's constant goading to keep NPAs under manageable limit,” a top official of Canara Bank said. According to Mr B. A. Prabhakar, Chairman and Managing Director, Andhra Bank, the Sarfaesi Act has proved to be a “very effective instrument” for recovery.

“A substantial amount of dues have been recovered using this Act in the recent past,” he said.

POSITIVE RESPONSE

Mr Krishna Kumar, Managing Director, State Bank of India, told Business Linehere recently that use of the Act was also prompting the customers to go all out to pay the dues.

“Some customers, though few, respond to possession and auction notices triggering some settlements and restructuring,” he said.

Mr Shiv Kumar, Managing Director, State of Bikaner and Jaipur, said deployment of the Sarfaesi Act was one of the last but effective recovery tools for banks.

“But one should ensure proper repayment in home/property loans while remembering that a bank is also under obligation to recover the dues,” he said.