NPA recovery Bill won’t shake things up

Published: Friday, Dec 14, 2012, 2:08 IST 
By Megha Mandavia | Place: Mumbai | Agency: DNA

The pain of bad loans does not seem to be going away anytime soon. A new amendment passed by the Lok Sabha on Monday making auctioning of borrower security easier may not actually translate into any substantial or even immediate reduction in these loans for public sector banks.

The key provision in the new Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) now allows banks to bid for the unrealised security against the value of non-performing assets (NPA) if it is unable to secure a decent value of the assets at the auction. This will help banks offset outstanding NPAs against the ‘realisation’ and sell them later at a better price.

“It certainly helps because many auctions don’t go through due to cartelisation by bidders and legal issues. But the impact will not be substantial on non-performing assets because every time we don’t have that much collateral to sell,” pointed out BA Prabhakar, chairman and managing director at Andhra Bank.

PSU banks are plagued by rising levels of non-performing assets with a slowing economy and loose lending norms. Gross NPA levels at all listed banks in the quarter ended September on an average stood close to 3%, which are expected to go up to as much as 4.5% in the next one year.

The recent changes will no doubt hasten the recovery process, but a substantial impact on bad loans will not be visible, bankers and analysts said. “We don’t see this as a material change – the difference is largely optical and it is likely that the market will see through these cosmetic accounting changes,” said Seshadri Sen, an analyst with JP Morgan. “Our negative view on PSU banks is underpinned by expectations of continued momentum in incremental delinquency, a view that remains unchanged.”

Large public sector banks are continuing to lend aggressively to stressed sectors such as real estate, iron and steel, textiles, infra and agriculture, thus increasing the risk factor in the banking system, even though bankers are tracking recoveries on a daily basis now.

“The amendment will definitely help increase recoveries, but won’t reduce the NPAs immediately. The change will happen only over a period of time. All these changes are just enablers which help us put more pressure on willful defaulters,” said RK Bansal, executive director with IDBI Bank.

http://www.dnaindia.com/money/report_npa-recovery-bill-wont-shake-things-up_1777362

Advantages of buying properties through Bank Auction/ ForeclosureIndia.com & How do I participate in a Bank Auction

Why would you want to buy a foreclosed home? Here are just a few of the reasons that homeowners and investors are flocking to the foreclosure market.

1.PRICE ADVANTAGE: Approximately 25 % cheaper than market price.

2.LEGALLY SAFE: Since Banks / Financial Institutions have given loan after verification of all the legal aspects only, these are 95 % legally safe.

3.CREDIBILITY OF SELLER: You are buying from a Bank / Financial institution, which is authorized by Govt of India to sell such properties.

4.TIME FRAME: Entire transaction will be over in less than two months period. Ownership in one month.

5.TRANSPARENCY: 100 % transparent transaction. 

6.PROBABILITY: 90% chances of winning in the Bank Auction. 

Amendments to SARFAESI Act to clear recovery processes: BA Prabhakar, Bank of India

In an interview with ET Now, BA Prabhakar, ED, Bank of India, gives his views on the amendments made in the SARFAESI Act. Excerpts:

What is your first take of the amendments and how they speed up the process of actually recovering bad debts and bringing down NPAs?

The details of the proposed amendments are not very clear but what we read from the press is that it is more about the procedural issues that are involved in the invoking of the SARFAESI Act. We understand that it enables the government to create an electronic registry for all the mortgages created. It is also going to simplify the approval process that banks have to obtain from the District Magistrate or the Metropolitan Magistrate before they really go ahead with the action. But we do not have the full details about this proposed amendment.

If you could highlight with an example, about how this act which came into place in 2002, will really help banks in bringing down their NPA levels and speeding up the process of recovery for bad debts?

It has definitely helped the banks improve the recovery performance. We need to differentiate the NPA recovery in 2 ways. One is: If the NPA has to be recovered through sale of securities, then definitely this act has been helpful to the banks. But if we are looking to NPA recovery, then we have to wait for the whole environment to improve and the economy to perform better. Then only much of the NPAs can be recovered.

Most of the NPAs fall in the category which are subject to the stresses in the economy and what you can recover from sale of security is not a very significant portion. What we are finding is in many of the recovery actions taken by us, we find that the borrowers immediately go to the courts, put stay orders, even though banks are allowed as per the act to sell the securities. So the whole process of vacating the stay will take time. So these are some of the bottlenecks which are being streamlined now. 

Would this in anyway facilitate faster recovery and favourable decisions from the debt recovery tribunal if I can use that term loosely because we see that forms are significant portion of NPAs for the PSU banks as well because we were given to understand that this would help faster auctioning of properties to recover the debts which was not possible in the past, is something like that going to happen?

Yes, it will definitely improve the faster recovery. There is no doubt about it.

This would be by virtue of special courts being set up or more powers being granted in the favours of the lenders which is the banks at the current point of time?

It will be removing some of the procedural bottlenecks which are there in the present provisions.

Currently what percentage of your NPAs are problematic or mortgaged against assets which you think will be helped if you could give us an amount since you gave us the 2 types of NPAs to monitor for recovery, what percentage do you think would get help under this act?

Maybe about 20% to 25% of the NPAs could fall under the securitisation act recovery actions that can happen, about 20% to 25% is what could be there.

Govt paves way for easy loan recovery by banks

BS Reporter / New Delhi October 14, 2011, 3:35 IST


The Cabinet on Thursday cleared two amendment Bills paving the way for banks to recover loans from errant borrowers. The move would also help the financial institutions to reduce their non-performing assets and release funds for home, retail or corporate credit needs.

The Bills to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act were listed in the Budget for 2011-12 as one of the financial sector reforms that the government would carry out this fiscal.

Banks make U-turn on prepayment

Resistance prompted by fears of liquidity mismatch; banks now want charges capped, not waived
Joel Rebello & Dinesh Unnikrishnan


Banks are lobbying hard against a move that was supposed to improve ties with customers—the abolition of penalties on the early repayment of floating rate home loans. Weeks after agreeing to waive the prepayment charges, banks now say they should be capped, but not waived.

The Indian Banks’ Association (IBA) lobby group has written to the Reserve Bank of India (RBI) arguing against the move, fearing mismatches in liquidity owing to early payment.

The IBA note, sent to RBI in the second week of September, was in response to recommendations made by a central bank-appointed committee on customer service in banks. Based on this, banks had adopted a charter of 10 action points early September to improve customer service, at the annual conference of banking ombudsmen in Mumbai.

The action point in question said: “Banks must not recover prepayment charges in floating rate loans.”

Looking for your budgeted dream home? Search ends here

Published on Mon, Aug 22, 2011 at 18:24 |  Source : Moneycontrol.com

The RBI has hiked its repo rate in an effort to contain inflation, for the 11th time since March 2010 and still inflation worries continue to haunt the common man currently.

One must be feeling the pinch of inflation with costs rising even with basic necessities of everyday living. In such a scenario if you have been saving all your life for a home and now find costs are too high to afford one, you may have to wear your thinking cap and mull over this again. Is this really the case or can you explore some more avenues to see if you can still make the dream of a budget home come true?
The key is landing a good deal. Now, how do you go about this? Here are a few tips. If in spite of exploring these you still want to wait, you should ofcourse do so this will help you save more money towards your down payment, in case you intend to procure a loan helping you save on interest outgo, or wade through aspects related to home loan eligibility.

Suresh, a commerce graduate working as an accountant for the past five years says that the IT boom and double income families has left people like him far behind in the race of life. Buying a home is not even a dream. To his surprise he discovered there are affordable homes for people in his state too! It just takes caution and research to land a home of your dreams. It is a difficult but not an impossible task.
Suresh's real estate agent has advised him to follow these guidelines:

Second hand homes: Suresh's agent showed him second hand or even older properties. The rates of these properties were considerably lesser than new construction properties. Hence, Suresh could get a greater square feet area for his budget or get the same square feet area he wants for a lower cost. Suresh's real estate agent promised to strike a good bargain for him. The idea is to look for a seller who is in urgent need of money or who wants to sell off the property at the earliest. Such a seller is more likely to bargain on the price and sell off the home at reasonable price, even below the marker quote. The flipside to this is ofcourse that if you plan to fund the home with a loan and not your own saved sources, you need to factor in a lot more than 20% of the down payment, as is the usual norm with home buyers. The reason for this - the down payment will increase proportionately with the age of the property.

Look for homes outside the main city: Suresh was looking for an apartment in a good neighborhood, which would have a small commute from work and also is in close proximity to his parents home. Hence he had not considered the option of apartments located outside the locality that he grew up in. Thanks to the advice from his agent he decided to broaden his area of search. The price range of apartments situated on the outskirts of the city is more within his range. Also, since it is not very far away from the city, his daily commute will not pose a problem. His agent also told Suresh that the added advantage of purchasing a property in the outskirts of the city is that they make good capital investments as they have greater potential to appreciate in value than properties located in the saturated markets within the city. Also, people avoid outskirts because of lack of facilities like grocery, restaurants etc. Nowadays that is also not a problem since these amenities become available as soon as an area gets populated.

Find a good bargain: Suresh's real estate agent informed him that a property under construction will cost him lesser than an apartment that is ready for him to move in. So, he encouraged Suresh to consider purchasing a home under construction by the builder. This is because Suresh is not in an urgent need to move into a new home. If he purchases an apartment even before the construction begins or is in its early stages, Suresh will get a better rate. However, he carries the risk of the construction not turning out to be exactly how he perceived it. Also, it is advisable to go with reputed property developers here. On the flipside, even reputed builders can sometimes become unpredictable when it comes to delivering completed properties on time, hence discuss with your legal counsel on the best measures to take regarding such an event. If talks with the builder are not fruitful, the only course of action sometimes is the legal route, which again comes with its own hassles and can take a long time to reach a conclusion. As far as possible be vigilant when you acquire your property from the start to the finish and have your legal counsel prepare you for unfortunate eventualities every step of the way. Else unpleasant surprises may jump at you on a later date!

Purchase property not in the best condition: The agent also suggested that Suresh could try the option of purchasing property that is not in a good shape as such properties are generally available at low costs. Suresh can then renovate the property to look the way he wants it to look. Generally, the overall cost should be less than the cost of buying a new property that is in a good condition. Hunting for a property that is not in the best condition can be very challenging. You need to rely on an expert who is able to guage the true worth of the property. The level of damage is critical and you need to factor in renovation costs for the property too before you take a call. Also, the bank will decide if they will be able to offer a loan for such properties only if it meets the bank's property evaluation norms.

Search for properties auctioned by banks: Banks generally auction properties that they have claimed from loan takers who have been unable to repay their dues. Such properties are sold at a distress value, which is around 15-20% lower than the market value. The information on such auctions are usually published in popular dailies as well as websites like http://www.foreclosureindia.com/. This is also a good bet to find a property at a bargain price. BankBazaar.com is an online marketplace where you can instantly get the lowest loan rates , compare and apply online for your personal loan , home loan , car loan and credit card from India's leading banks and NBFCs.

Auctioned properties are a good bargain

Abitha Deepak  

Posted: Sat Jun 25 2011, 00:11 hrs

If you are thinking about buying a house or possibly even a second home, you would quite naturally think about how to get a good deal. There is one avenue for some good deals that most prospective buyers do not think about: properties auctioned by banks. And the good news is that you can get a house that is nearly 20 per cent of the current market value. How does one go about buying such a property? The aim of this article is to help you get started with building the plan for that deal.

How it works
The SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), 2002, empowers banks and financial institutions with the right to recover mortgaged property in case of loan defaults, without the intervention of the court. This means the lenders can take quick action and bring into effect the takeover of the property in question. Though it seems to be at the expense of the home loan defaulter, nevertheless it appears to be a good opportunity for people to buy property for a very reasonable sum.



Why it could be a steal
Once the lender takes control of the property, an independent valuation is conducted with the help of an independent chartered surveyor who fixes two values for the property. One is the market value of what the property is actually worth, and the second is the distress value, which is around 15-20 per cent lower than the market value. Due to the circumstances under which the auction is conducted, the property is almost always quoted with the distress value for the minimum bidding price at the auction. At the auction of course the prices can go up according to the bids and the location of the property. This gives the prospective new buyer an opportunity to win an auction for a very good deal as opposed to buying a property at the existing market value.

The market for auctioned properties
It is still an unorganised market, which is opening up as a venue for a prospective home buyer. More often than not it is currently more a property investor’s market rather than an end user market. Also, the proportion of commercial properties auctioned could be much higher compared to the residential properties auctioned.
These are a few pointers to guide you on the process and background check:

Scrutinise property sections of newspapers and also search for niche websites who deal with such property listings. Many nationalised banks periodically advertise in the popular dailies regarding auction dates, venue and the location of the properties to be put up for sale. Websites like http://foreclosureindia.com also offer this information for various cities in India.

E-auctions: Some banks do announce it by way of e-auctions, as it is a faster and more transparent medium to choose the highest bidder. It reaches out to a wider target audience and it helps the banks sell off these properties at an effective price, which will help them recover the costs incurred through the loan more efficiently.

Legal aspects: As a prospective bidder you will be allowed to check the property you are planning to bid beforehand, once a caution fee has been collected from you for participating in the auction. Do make arrangements for a legal counsel to accompany you for this visit and help you with all the legal aspects of the transaction. Though you are making a business transaction with the banks, which by itself means you will receive a legally safe and registered property, you still need to do your share of the homework. With the help of your legal counsel, investigate the title and do your research with the registry for a track record of the past 30 years of the property to understand who were its past owners, how many hands it changed and whether there was any legal tangle in the past that needs to sorted out before your make your winning bid. Verify all municipal records, tax records, whether the current owner has sole ownership and if it can be transferred to you in accordance with the rules specified in the Transfer of Property Act.

Be prepared for additional costs: The properties auctioned are disposed in the state they were first taken over by the banks. Hence, there might be some costs like outstanding payments due in terms of house tax, electricity, repairs, renovation etc. that need to be incurred once you purchase the property. Factor in all these aspects when you make the bid.

The advantage with such auctions is that all sale transactions happen through the bank, so you need not worry over the technical aspects of the sale. But you need to get your routine checks in place to see that you derive the benefits that ideally accompany such a bargain deal. l

— Author is Head Content & Strategy, BankBazaar.com

Consider distressed assets for bargain

Shilpa Phadnis, May 21, 2011, 06.48am IST
 
BANGALORE: If you are planning to buy a house, you could consider buying one going under the hammer. Properties auctioned through the Debt Recovery Tribunal (DRT) provide buyers with an opportunity to buy properties at a bargain price.

Banks and financial institutions auction off distressed assets to recover debts. Properties auctioned through DRTs are advertised in newspapers . If researched and bid upon, these properties could be a good bet for prospective buyers as they are priced much below the market value . "Resale properties have clear titles. Properties are priced 10% to 20% cheaper than current market values. Since these properties are quite old, the valuation is lower . The construction value of the property depreciates depending on how old the property is," said Naresh Dandapat , regional director-South at real estate consultancy Knight Frank India.

Banks are empowered to initiate action against defaulters under the Securitisation Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) to recover the dues without the intervention of the court. The lender/ bank, calls for a public auction where a buyer pays 10% of the reserve price as earnest money deposit (EMD) to participate in the auction. A consortium of lenders approach the DRT to recover their share of dues. DRT is an appellate established under the Recovery of Debts Due to Banks and Financial Institutions Act 1983 and SARFAESI is an Act under the DRT which came into force from June 2002.

Previously, people were wary of buying properties auctioned through DRT, as there were higher levels of negative sentiments towards foreclosure homes. "There is an element of risk when the owner of the asset makes a claim under section 17 of SARFAESI Act," said AV Bagur , director, Bank DRT Informatic Service. But the sentiment is slowly changing as property buyers carry out a thorough due diligence process . "It's zero risk as long as the lender takes adequate measures in putting up the property for auction in the prescribed manner. The buyer of such property can go through the legal documents and papers pertaining to the property in question before deciding to participate in the auction," said Ashok Rao, DGM, Manipal Housing Finance Syndicate.

It's not just the end users eyeing DRT properties. Many realtors and developers find value distressed assets. These could be large parcels of defunct industrial land/ distressed assets where the borrower could have defaulted . A 25-acre BPL property valued at over Rs 100 crore is up for grabs in ITBP, Whitefield , according to sources in the know. Kesarwala Industries' nine acre property in Whitefield valued at over Rs 108 crore is going under the hammer shortly, said an industry source.

There were 3,710 appeals filed at the DRT cell in Bangalore last year compared to 2,092 in 2009, according to sources in the tribunal.

Advantages of Publishing Auction Property Details in ForeclosureIndia.com

Advantages of buying Foreclosure :)

Why would you want to buy a foreclosed home? Here are just a few of the reasons that homeowners and investors are flocking to the foreclosure market.

• Low prices: Foreclosures sometimes sell for 30 to 50% below their true market values.Foreclosures are almost always priced lower than homes in the traditional real estate market.
• Great fixer upper homes: Many foreclosed homes are 'fixer upper homes' that need repairs, renovation, and tender loving care. By investing a little, most homebuyers find that they can make significant profit by reselling the home after some relatively quick and minor repairs.
• Lower closing costs: The banks and government agencies that sell foreclosed homes are in a hurry, which means that they are often willing to accept lower offers on down payments, financing options, closing costs,etc. Many sellers will come right out and offer buyers great deals and contract terms simply to sell the house quickly.
• No move-in delays: Most foreclosures are vacant, meaning that you can move in almost immediately after purchasing the home, without having to wait for the previous owners to move out.
• Profitability: Because foreclosures are so inexpensive, they're great options for resale, equity-building, renting, and other investment purposes. You can easily make a tidy profit, and quite possibly make your personal fortune by wisely investing in foreclosed properties.