RBI permits banks to set their own foreclosure terms for Term Deposits

The Reserve Bank of India has has decided to permit banks to set their own policies regarding foreclosures of Term Deposits, Daily Deposits and Recurring Deposits for the purpose of better Asset Liability Management (ALM).

Originally the banks were bond by the condition that when a Term Deposit is foreclosed for the purpose of a new term deposit in the same branch no fine/penalty can be levied as long as the new term deposit is for a longer period than the balance time of the original one.

 This change now lets the banks formulate their own interest rate policies on foreclosure of term deposits.


RBI Circulars Issued on 28.5.2012:

BANK AUCTIONS - UNSOLD PROPETIES - AN OPPORTUNITY FOR BARGAIN HUNTING

Y.Bhargav, Managing Partner, FORECLOSUREINDIA.COM, 25.5.2012:

Hyderabad : Most of the Public sector Banks and Private sector Banks are Auctioning the immovable properties under SARFEASI Act. The rate of success of selling of the properties through Bank Auctions is varying from around 40 % to 60 % depending on the city, market sentiment, political situations etc.

As per the observations during the last two and half years, the primary reasons for less success rate are :

1. Inappropriate reserve price: Some of the Authorized Officers are finalizing the reserve price over and above the distressed price recommended by the Govt. approved valuer. They are some times not considering the external factors like market sentiment like recession, political situations like etc.

2. Lack of publicity to the Auctions : To fulfill the mandatory requirements and save cost of news papers publication, some of the Banks are publishing the Auction Notices in non prominent news papers.

Wide publicity is required like displaying of Banners, distribution of pamplets, publishing in Internet portals etc.Internet users in India are 110 millions, i.e 11 crores, as against All English news papers readers at 20 millions, i.e 2 crores. Publishing in Internet portals is damn cheap at 4 % cost of English news paper advertisement cost and it gives 25 times more publicity.

3. Lack of proper facility to inspect the property in advance: Inspection of the property is being arranged a few days before the Auction date.

Inspection facility is required immediately after publishing of the Auction notice and at least on one public holidays or after office hours so that interested investors and their family members can inspect the property to take appropriate decision.

4. Loan facility to buy these Properties : Some of the Banks and Housing financial Institutions are not giving loans for these properties.

Banks / Financial Institutions will have to come forward to give quick loans to buy these properties to create a Vibrant Bank auctions market / Foreclosures market in India. Interested Investors must also get the sanction of Pre approved Housing loans to buy this type of properties.

5. Lack of awareness among General Public : General awareness is required as they can buy the properties at very attractive prices.

More than 27% of total home sales are foreclosed sales in USA, where as it may be less than 1 % in India.

6.Sentiment about buying properties in Bank Auctions: Some of the people with out having any financial control over their expenditure, are not paying the loans and they are losing their properties.
Due to the above reasons Banks and Housing Financial Institutions could not sell around 40 % or above properties and they are laying with them only. To dispose off these properties some Banks are going for re Auction. Some Banks are selling on private treaty, i.e selling the property to anyone who approaches them to buy these properties. Banks are reducing the earlier reserve price also by 5 % to 15 %.

The following advertisement is self explanatory of the above aspects.

PSU banks trying to join hands for extending loans to big projects

Dheeraj Tiwari, ET Bureau May 23, 2012, 03.11AM IST

NEW DELHI: Grappling with a rising tide of bad loans, state-run banks are trying to cobble together a joint front to evaluate and extend loans to large projects.

The proposed system, being developed in consultation with the finance ministry, will require banks to form a consortium to appraise commercial projects seeking to borrow large funds but does not fix a limit as of now.

"The idea is to set up a uniform system of appraisal for all 26 state-run banks to rein in bad loans and ensure prudent lending," a finance ministry official said. "The system will ensure that an individual bank does not have excessive exposure to one borrower."

The finance ministry has asked smaller banks to give loans above Rs 150 crore only through a consortium.

Non-performing assets, or bad loans, of nationalised banks rose to 2.9% of their total lending in December 2011 from 2.3% in March. Gross non-performing assets of these banks stood at Rs 59,397 crore at the end of December, finance minister Pranab Mukherjee told the Parliament on Tuesday.

According to ratings agency Crisil, bad loans of state-run banks will rise to 3.2% of their total lending, or Rs 2 lakh crore, by March 2013.

The new system will ensure that banks share data of all existing loans to corporates and large borrowers. This will help them take an informed decision, the finance ministry official quoted above said.

Banks already follow a prudent exposure limit, but the government wants to add another layer of protection to avoid a repeat of Kingfisher Airlines-like situation. Public sector banks have together lent Rs 5,608 crore to the troubled airline. Of this, the exposure of State Bank of India alone is Rs 1,580 crore.

Much of this loan is at the risk of becoming a bad debt.

Banks, however, say they are not sure how the new system will work out. "Common appraisal system will automatically mean that most of the lending will be done through the consortium route," chairman of a PSB said. "But we will have to see the outcome of the final policy before stopping individual lending."

To ensure that the common appraisal system does not delay loan sanctions, the finance ministry has asked banks to set up zonal panels. "We have asked banks that this committee should meet at least once a week for quicker processing of loan applications," the finance ministry official said.

http://articles.economictimes.indiatimes.com/2012-05-23/news/31827568_1_bad-loans-public-sector-banks-state-run-banks

Commonwealth Games Village flats auction windfall for Delhi Development Authority

Neha Pushkarna & IRFAN AHMAD, TNN | May 22, 2012, 01.51AM IST

NEW DELHI: The auction of Commonwealth Games Village flats brought about a windfall for Delhi Development Authority on Monday. The land owning agency recorded a net profit of nearly 120% by auctioning a five-bedroom flat at Rs 24,137 per sq ft while it was bought at Rs 11,000 per sq ft from private developer Emaar MGF three years ago. DDA had received bids for 87 flats over the last one month, which were opened at Vikas Sadan on Monday to ascertain the market price for selling rest of the flats in its kitty at the Games Village.

DDA had bought 333 flats from Emaar MGF at Rs 11,000 per sq ft by spending Rs 769 crore in all. If DDA goes on to sell rest of these flats at the price recorded on Monday, it may end up making a profit of nearly Rs 900 crore. DDA owns a total of 711 flats at the Games Village, which are now likely to be sold to public sector undertakings and government agencies.

The highest bid received at the auction was of Rs 7,31,87,969 (Rs 24,137 per sq ft) against a reserve price of Rs 5,21,87,951 crore (Rs 17,205 per sq ft) - an increase of 40.23%. The five-bedroom flat at tower-14 was auctioned to Delhi State Cooperative Bank Limited. The highest rate offered was actually Rs 24,195 per sq ft for another flat in the same tower but since its area was smaller, the final amount was Rs 7,27,06,472. DDA officials were ecstatic after the auction, especially in the aftermath of Shunglu Committee pulling it up for buying flats from the private developer at a bailout of Rs 11,000 per sq ft in May 2009. Monday's bid was all DDA needed to refute the allegation of causing a loss to the exchequer.

"The response of PSUs, banks and autonomous bodies was very good. We received multiple bids for specific flats. Normally, only 50-60% flats receive bids in such auctions but we managed to receive them for 87 out of 110 flats. The average bid on Monday was Rs 21,000 per sq ft," said Asma Manzar, commissioner, DDA housing.

The CWG flats, which were being auctioned on an experimental basis, turned out to be a golden goose for DDA. State Bank of India successfully bid for maximum number of flats. "We won 32 of the 36 flats, which we had bid for in tower 1 and 14," said Umesh Goyal, an SBI official.

Other PSUs including HPCL, ONGC, Punjab & Sind Bank, Delhi State Cooperation Bank Limited, Agriculture Insurance Cooperation of India (AICL), and National Insurance Company Limited also successfully bid for a number of flats.

The authority received over 218 bids for flats in towers 1, 9 and 14. Though private bidders were outdone by the PSUs, a few like Sanjeev Dangi were lucky. "It is a dream come true for me. The bidding was very competitive but I am delighted at having secured a flat in the CWG Village. I am elated," said Sanjeev Dangi, a businessman from Jaipur, who now owns a three-bedroom flat in Tower 9. He had bid Rs 3.92 crore for it. 
http://timesofindia.indiatimes.com/city/delhi/Commonwealth-Games-Village-flats-auction-windfall-for-Delhi-Development-Authority/articleshow/13366460.cms