Help to speed up NPA recovery, Pranab tells DRT chiefs

 SPECIAL CORRESPONDENT, THE HINDU

Problem of increasing NPAs has to be addressed on a priority basis.

                   

Finance Minister Pranab Mukherjee, on Wednesday, asked chiefs of debt recovery and appellate tribunals to suggest ways and means of expediting the release of bank resources locked up in the form of NPAs (non-performing assets). 

Addressing the first conference of chairpersons of DRATs (debt recovery appellate tribunals) and presiding officers of DRTs (debt recovery tribunals) here, Mr. Mukherjee pointed out that there could be no fresh lending unless there was recovery of earlier loans and, therefore, the problem of increasing NPAs of banks had to be addressed on a priority basis.

Even as the government has advised banks to closely monitor their NPAs, Mr. Mukherjee argued that the role of DRTs was all the more important as they were the part of mechanism for recovery of loss of assets by banks by way of bad loans.

Asking the tribunal chiefs to come out with ‘concrete suggestions' to improve their functioning and help in speedier recovery of bank debts, Mr. Mukherjee noted that the conference was being held at a time when the Indian economy was faced with various challenges.

In the event, although the slowdown in the GDP growth rate, coupled with the widening fiscal and current account deficits were a matter of concern, there “is no need to press the panic button as he has full faith in the capacity and abilities of our people as well as in the resilience of the Indian economy to overcome successfully such challenges.”

Highlighting the positive aspects of the economy, Mr. Mukherjee asserted that with strong basic fundamentals and high rate of domestic savings and investment, along with a reversal in the tight monetary policy, among others, taking the economy back to the path of higher growth, maintaining a moderate rate of inflation, narrowing the current account deficit and restricting the fiscal deficit to two per cent of GDP were much achievable.

The Finance Minister also argued that it was on account of the well-placed regulatory mechanism and effective functioning that banks were not adversely affected by the international financial crisis.

On the contrary, the role of banks was such that they helped in minimising the impact on the economy. In such a scenario, the role of DRTs “is all the more important in helping out the banks to deal with mounting NPAs/loss assets,” as DRTs could ensure effective and speedy recovery of public money.

Keeping this important aspect in view, as per the relevant legislation on recovery of dues, the endeavour of tribunals should be to decide cases in 180 days, but the DRTs had not been able to adhere to this time line. Mr. Mukherjee said the pendency of cases in tribunals was about 67,000 cases, involving an amount of Rs. 1.36 lakh crore as on March 31, 2012. “This is a matter of great concern,” he said.

http://www.thehindu.com/business/article3498324.ece?homepage=true

Take over of Management of An Engineering Institute.

Yerneni Bhargav, Managing Partner, Foreclosureindia.com


Hyderabad :  SARFEASI Act ,section 13 (4) (b) specifies that " Take over the management of the business of the Borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: One of the Public sector Bank has issued a Lease /Sale Notice for Take over of the Management of an Engineering Institute. The notice is published below for information.

      All the Borrowers of the Banks and Financial Institutions shall be vigilant about their loans to safe guard their management control of their businesses.

Be vigilant on NPAs, Pranab tells PSBs

                                  
Banks asked to promote electronic mode of transactions

Finance Minister Pranab Mukherjee, on Tuesday, directed public sector banks (PSBs) to keep up the momentum of bringing down their non-performing assets (NPAs) and be vigilant in this regard to ensure sound financial health of the country's banking system.

Lauding the PSBs for reduction in gross NPAs from the level of 3.18 per cent in December, 2011, to 3.10 per cent in March this year, Mr. Mukherjee said: “I am happy that banks have taken up the challenge to reduce NPA's ...This momentum now has to be kept up and timely action in this direction would ensure sound financial health of the banking sector.”

Addressing chief executives of PSBs and financial institutions at a meeting for performance review of last fiscal, the Finance Minister expressed satisfaction over the banks ‘very proactively' responding to measures aimed at avoiding NPAs and pointed to recent decisions on restructuring of loans extended to textile units and distribution companies (discoms) in the power sector as good examples of NPA management. “I urge you to deploy various tools at your command for containing and rolling back NPAs in accordance with the guidelines of the Reserve Bank of India,” he said.

As a proactive step to help these sectors, which are under stress owing to the economic slowdown, bank loans totalling about Rs.1.30 lakh crore to discoms and Rs.35,000 crore to the textile units are in the process of being restructured so that these sectors can obtain fresh loans.

Reviewing the performance of the lending companies during the fiscal, Mr. Mukherjee drew satisfaction from the fact that while PSB deposits grew by 14.4 per cent to over Rs.50 lakh crore in 2011-12, advances also went up by 17.7 per cent to over Rs.40 lakh crore on a year-on-year basis. Alongside, the banks' net profits rose from Rs.44,900 crore to over Rs.49,500 crore during the year even in the wake of a difficult economic scenario. As for credit to the farm sector, the PSBs had been set a target of Rs.5.75 lakh crore for 2012-13, which is achievable as loans to the sector exceeded Rs.5 lakh crore during the previous fiscal year.

For the current fiscal, the Finance Minister has asked the PSBs to pay special attention to ensuring that every farmer household receives a Kisan Credit Card and existing accounts are quickly replaced by debit cards under the new scheme.

While asking the RRBs (regional rural banks) to undertake coordinated branch expansion with their sponsor banks and start rolling out of ATMs and issuance of credit cards, Mr. Mukherjee also told the PSB chiefs to promote electronic mode of transactions over other modes. “They should examine the possibility of making NEFT transactions up to Rs.1 lakh free of charges, as has been done by Oriental Bank of Commerce,” he said.

In this regard, he asked the Reserve Bank of India (RBI) to proactively work on this front and ensure that all electronic banking transactions are made possible without any charges being levied. “The use of debit cards to the point of sale without any transaction charges at least for micro and small transactions should be our next objective,” he said. 

How to buy or sell a house against which loan is outstanding

Amit Shanbaug, ET Bureau Jun 11, 2012, 09.19AM IST

The buyer will also demand the copies of stamp duty and registered house documents. Since these papers will be mortgaged with the bank if you have taken a home loan, you can use a photocopy of the required documents to initiate a deal. Depending on the kind of property and ownership, some more documents, such as a no-objection certificate from the housing society and a documented consent in case of jointly owned property, may be required.

If a buyer pays with own funds

In case, the potential buyer plans to pay for the property through his own savings and does not want to take a home loan, the procedure is pretty straightforward.

However, with the steep increase in home loan interest rates, Khan is finding it difficult to service both the loans and plans to sell one property. "The profits generated from the sale of one house can be used to pay the loan for the other," he says.

Financial insecurity is just one of the reasons a property owner may want to sell a house for which he is still paying the EMIs. A couple of years after buying the house, you may realise the need to upgrade to a bigger property because your needs have increased.

Some buyers also prefer shifting to a better location within the same city either because it offers better infrastructure or is closer to their workplace or their children's school. If you are moving to a different city for work, you may want to settle down there after disposing of the existing property.

While these arguments are valid for a seller of a mortgaged property, it may also make sense to buy a mortgaged resale property rather than one that is under construction. The advantage of purchasing a resale property is that it may be at a better and established location and you will be dealing with an individual instead of a builder's sales team.

"When a buyer approaches a developer, the salespersons use all kinds of pressure tactics to ensure a quick sale and the buyer doesn't get a chance to conduct due diligence," says Sandeep Sadh, chief executive officer of Mumbaiproperty.com, a Mumbai-based real estate portal. In the case of a resale property, you have ample time to examine the pros and cons of the deal before taking a decision.

Another advantage with buying a resale property is that banks generally conduct due diligence for the house that they are going to finance. "So if you are planning to buy a mortgaged property, rest assured that it has got all the necessary approvals by the relevant authorities," says Sadh.

Nanda bought a 2-BHK house in Thane, in 2009, for Rs 35 lakh. The seller had an outstanding loan of Rs 5 lakh.

How he settled the loan

Nanda made a down payment of Rs 12 lakh. The seller used a part of it to prepay the outstanding loan amount and got the original documents from the bank.

Nanda had a preapproved loan, and after registering the property in his name, he got the loan processed in 10 days to pay the remaining amount.

"I got a good deal on the property as the seller was in a hurry and was not finding enough buyers because of the outstanding loan."

While the reasons for selling and buying a mortgaged property may vary, one common problem that most people face is the lack of clarity on how to buy or sell a property that is mortgaged to the bank. Can you sell a mortgaged property at all? Do you need to settle the home loan first and then approach a buyer or can the buyer take over your loan? What if the buyer himself plans to take a loan to fund the purchase?

Many property owners who have bought the house with money borrowed from a bank have grappled with these questions. "I still have to repay a sizeable portion of the principal back to the bank before I can get the original papers," says Khan, whose house is mortgaged with a leading public sector bank.

 Khan plans to sell his 2-BHK house at Goregaon, for which he has an outstanding loan of Rs 19 lakh. He has purchased another house through a bank loan and is finding it difficult to process both. So, he has decided to sell one.

How he plans to settle the loan

The potential buyer has agreed to pay him a lump sum. Once the original documents are released by Khan's bank, the buyer will apply for a housing loan when the documents are cleared by his bank. "I have a copy of all the original property documents. The potential buyer can get it verified with the bank as well."

To avoid confusion while finalising a deal, here's how you can sell (or buy) a house against which a loan is outstanding.

Get the property documents in order

Before you approach a buyer for selling the property or talk to your bank for settling the outstanding home loan, get the paperwork in order. The main documents required to sell a residential property are the housing society share certificate and the sale/ purchase deed of the property.

The sale deed confirms that the land is in the name of the seller and that he has the right to dispose it of. If the property has changed hands more than once, the buyer may also ask for a copy of the previous deeds, in order to confirm the authenticity of the deal and property.

The seller first needs to obtain a letter from the bank with which the property is mortgaged, stating that the bank agrees to relinquish the property documents after the full and final payment of the loan. The buyer will then be required to pay an amount equivalent to the outstanding loan to the seller's housing loan account, after which the process of releasing the documents by the bank is initiated.

The time given to the seller to make the payment can be worked out between the seller and bank. The bank specifies a date by which the seller must make the full payment. If the money is not transferred to the loan account by the due date, the bank can extend the date and charge a penalty or premium over and above his outstanding principal.

"Though the prepayment penalties have been done away with, the seller incurs additional cost by way of a premium that's besides the outstanding amount if the remaining sum is not paid to the bank by the prescribed due date," says Om Ahuja, CEO, residential services, Jones Lang LaSalle India. This additional amount is usually decided by the bank before the fixing of the due date.

Once the borrower pays off all the dues, he receives the 'no due' letter from the bank. This document certifies that there are no outstanding dues on the housing loan to be paid. The original documents kept with the bank as security are usually released over a period of 5-10 working days of receiving the money.

However, at any point of time, a borrower should have a photocopy of all the documents he has submitted to the bank at the time of loan application.

Ramesh Bhojwani, a Mumbai-based financial expert, explains that the sale proceeds cannot be fully executed till the time you are servicing a housing loan. "You can't sell a mortgaged house if the buyer insists on the documents required to apply for a loan because all the original papers are lying with the bank," he points out. Therefore, the amount paid to the bank to release the documents should also be a part of the purchase agreement.

Are there any tax implications either for the buyer or seller if the amount is paid as a lump sum? Hiten Shah, associate director, tax and regulatory practice, Ernst & Young, explains that there will be no tax implication for the buyer since this payment is part of his total purchase price.

"The lump-sum payment made by the seller will not have any impact on his cost of acquisition. However, the interest paid on the loan can be claimed as deduction under income from house property and a deduction for principal repayment can be made under Section 80C of the Income Tax Act," explains Shah.

If the buyer takes a home loan

If the buyer plans to take a home loan to fund the purchase of the mortgaged house, the seller will still be required to settle his home loan first. The loan cannot simply be transferred from the seller to the buyer. "Even if the buyer is taking a housing loan from the same bank where the seller has mortgaged the property, the bank will insist on first closing the earlier loan before starting a new one," says Bhojwani.

So, essentially, a buyer buys a mortgage-free property since the process for the home loan of the buyer is initiated only after the previous loan has been cleared.

The buyer of the property will have to submit all his financial documents to the bank and once the bank is fully satisfied about his repayment capacity, he will be eligible for the new loan. This route requires the entire loan process to be repeated, along with all the implied documentation submissions and approvals. This also means that the standard cost of processing a new loan application will be applicable.

"The bank, at its discretion, may waive some charges, but generally legal, administration and processing charges are levied by the bank. Besides, the rate of interest on the loan will be the one existing at that time, not the earlier one," says Bhojwani.

Experts advise that it is better to take a housing loan from the same bank where the seller has mortgaged the property as the bank will just have to examine the buyer's financial eligibility before furnishing the loan. "The process will be faster since all the property documents are already with the bank," says Bhojwani.

Tax implications

While selling or buying a mortgaged property is possible, selling a property within a couple of years of buying it can pare down your actual profit by half (see graphic). "If the seller is disposing of his property before the mandatory three-year limit, he will incur short-term capital gains tax regardless of whether the sale proceeds are being invested in a new property or not," says Ahuja of Jones Lang LaSalle India.

If you sell a flat within 36 months of buying it, the profit is added to your income for that year and taxed accordingly. If you fall in the highest income tax bracket, the tax rate will be 30.9%. If you have taken a home loan on the property, you will also have to take into account the interest that you have already paid before calculating your actual gains.

Under Section 80C of the Income Tax Act, the principal of the home loan can be claimed as tax deduction. However, if the property is sold within five years of buying, the tax deduction is reversed.

Most investors look at short-term real estate investments the same way and get carried away by stories of friends or colleagues who made lakhs within a year. Before you are inspired to do the same, do your calculations, or better still, stick to your investment for the long term.

If you have held the property for more than three years, the gains are treated as long-term capital gains and taxed at a lower rate. The taxman also gives you the option of using indexation to bring down your tax liability (see graphic).

Inflation indexation takes into account the rise in consumer prices during the time that the investor held an asset and adjusts his buying price accordingly. This lowers the effective profit from the sale of the asset and, therefore, the tax liability. The investor has the choice to pay a flat 10% tax on the capital gain or 20% after indexation.

Is this the right time to sell?

The property market may be flat across most locations, but keep in mind that if you price it right, a resale property can be a better deal for a potential buyer given the advantages of a better location and established infrastructure. Also, keep in mind that what is true for city limits in Mumbai or central Delhi may not be true for the location where you have your property.

Residential property market is very location-specific and may change even from one locality to another. So take a decision only after you are sure of the market conditions in the location. A Visit to a couple of property brokers will give you a sense of the situation.

Whether you sell your house now will also depend on your need for money. Remember, property is an investment that should not be liquidated in a hurry if you are not in urgent need of funds. Getting the best deal may sometimes require you to wait patiently to find a buyer or even spend money in adding value to your house before you put it up for sale.

However, keep in mind that the rate of appreciation in property prices over the next couple of years will be much slower.

Another factor that you need to consider before you buy a house is the rental returns from the property. While the prices may fluctuate, the rental revenue represents a source of steady income for the owner.

http://articles.economictimes.indiatimes.com/2012-06-11/news/32175069_1_resale-property-loan-interest-home-loan/3

SBI's One Time Settlement of NPA's of MSME

SBI has launched an one time scheme named SBI OTS MSME, 2012, this scheme has been made applicable to all the MSME's with doubtful or loss assets.

Further details including the coverage, cases which are not eligible, Settlement Formula for one time amount, payment terms can be found on sbi.co.in >>> SME >>> SBI OTS MSME, 2012.

SBI is also giving incentives @ 15% & 10% for those making full payments within one and three months.

The last date for receiving applications has been given as 31/7/2012. 

RBI says no Foreclosure charges for home loans on floating interest rate

On the 5th of June 2012 RBI has passed a circular informing all banks that they will no longer be allowed to charge foreclosure charges on home loans on floating interest rate basis.


RBI has also noted that

The removal of foreclosure charges/prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans.

Prior to this the banks were free to set their own foreclosure fees and only a few banks chose not to levy any and in some banks the foreclosure fees was linked to source of their income for example HDFC, LIC Housing Finance did not charge any fees if the loan was prepaid out of the own sources of the borrower.

This was causing causing a considerable amount of confusion and grief to the loan borrowers as many of them became aware of the Foreclosure fees only when they tried to switch over to a cheaper loan plan or tried to close their loans.


View Circular in RBI.org.in 

Hotel Chidambara back under hammer

Jun 6, 2012 - Times of India

NAGPUR: The Hotel Chidambara Internationalat Ramdaspeth (earlier Royal Palace), is once gain under the hammer. This was one of first properties of a bank defaulter that was auctioned in 2002 by evoking the stringent Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act that came into effect the same year.

As bad loans in banking sector had become a burning issue those days. Government enacted this law which empowered banks to go-ahead with seizure and sale of defaulters' assets. Those days every auction by a bank evoking this law including that of this hotel created a hype sending signals to wilful defaulters.

A decade later, Raipur-based businessman Balkrishna Agrawal who had purchased this hotel and rechristened it Chidambara International, is now a bank defaulter himself. He was known to be close to former chief minister of Chhattisgarh Ajit Jogi. They eventually fell apart with Agrawal joining Bahujan Samaj Party (BSP). Sources hint at political vendetta as a cause of his downfall.

In 2002, the original owner Rajkumar Khattar had mortgaged the hotel to Shikshak Sahakari Bank, which used the SARFAESI Act to recover its dues. The bank realized Rs 4.32 crore by selling the hotel that it claimed to be one its major achievements. Now when auctions under this law have become routine, Punjab National Bank (PNB), to which Agrawal owes over Rs 20 crore has invited bids for the property.

The bank has fixed a reserve price of Rs 12 crore—a three fold increase in a decade. This is not the first time PNB is trying to sell the property. The earlier three attempts to invite bids failed as no buyer turned up. Under the current auction, bids will be opened on June 27.

The hotel is located on a 8,000 square feet plot and has a built up area of 30,000 square feet. Realty players have mixed opinion about its value. Deepak Heda, a real estate advisor, said the locality has a market rate of Rs 15,000 a square foot and with the structure the hotel could easily fetch up to Rs 25 crore. Pankaj Roshan, a broker, said a reserve price of Rs 16 crore could have been set considering the market rates. However, the property may not be finding takers due to several hidden liabilities.

Agrawal was granted a loan by Kingsway branch of PNB for taking over a fertilizer factory at Raipur. However, the Chhattisgarh government cancelled the lease of the land where it was located. The business had to be shut down, leading to the default by 2007. The hotel is a part of the extended collateral security offered to the bank.

Agrawal, who is reportedly not responding to the bank's calls, could not be contacted. His brother Santosh Agrawal said they had purchased M/s Dharamdasji Morarji Chemicals and Fertilisers, a concern that ran on a land leased by Chhattisgarh government. "Although 50 years of the tenure remained, the lease was abruptly cancelled and the business came to a standstill," he said. The firm also has around 15 acres of freehold land near Raipur which could also be disposed of by the bank. However, most of it has been encroached upon and the government has failed to react despite FIRs, he claimed.