Bank-auctioned homes may be cheaper

Watch out for any unpaid dues, taxes and society bills the previous owner could have defaulted on
Yogini Joglekar  |  Mumbai  April 21, 2013 Last Updated at 21:27 IST

Shashi Nair, a Mumbai-based advocate, bought two houses in Chembur and Vasai in 2005 and 2010, respectively, through two different bank auctions. Nair purchased these properties from banks that opted to take recourse under Section 101 and the Debt Recovery Tribunal (DRT) Act.

The most common Acts under which banks take recourse are the DRT, state-specific Co-operative Housing Societies Act, and the Sarfaesi (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act.

The Sarfaesi Act, 2002, allows banks and financial institutions to auction properties (residential and commercial) when borrowers fail to repay their loans.

It helps banks reduce their non-performing assets (NPAs) by adopting such measures for recovery.

According to NPAsource.com, the net NPAs of 40 listed banks rose to Rs 92,398 crore in December 2012 from Rs 61,558 crore in March 2012. There were about 23,000 registered properties for auction, worth Rs 21,000 crore. Of these, 8,548 residential flats and 1,846 commercial properties are up for auction.

Ram Sangapure, general manager at Central Bank, says, "Most banks today recover their NPAs under the Sarfaesi Act, as it is faster, hassle-free, and empowers banks to do so without the intervention of the court."

Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, says, "Usually, houses bought under the Sarfaesi Act are up to 15-30 per cent cheaper than the prevailing rates of homes in that area. This is because demand for such homes is low, as very few people know about this channel and also banks don't stress on a high price as long as they can recover their losses." Buying through this channel saved Nair as much as Rs 8-10 lakh than the prevailing rates in those areas. Valuations of bank-auctioned homes tend to be on the conservative side, as it is a distress sale.

Properties under Sarfaesi Act
If the borrower defaults on repayment of his/her home loan for six continuous months, banks give the borrower a 60-day period notice to regularise his repayments. If the borrower fails to do so, banks will issue another 30-day period notice. If the borrower doesn't pay even in this period, his or her loan would be declared an NPA. This is when banks will auction his mortgaged property to recover their loan.

Bank issues notice about possession
If the borrower still fails to repay the loan, the bank will take possession of the property that has been kept as mortgage or collateral. The bank can take the help of the police in case the borrower doesn't part with his property. After the property is under its possession, the bank will issue a notice in newspapers. This is when potential buyers should prepare themselves and wait for bank's auction-notice.

Wait for the auction-notice
The bank now hires a government-appointed valuer, who will value the property and arrive at a reserve price (RP) or a minimum bid price. It is a price below which the bank is not allowed to sell that property. If the price fetched exceeds the bank's dues, the excess amount is given to the borrower. Only after arriving at the reserve price, will banks advertise auction-notice. They can publish this only in one English and one regional newspaper, 30 days prior to the auction.

Since information about such notices is limited, one can also look at websites like foreclosureIndia.com and NPAsource.com. These portals give information about the latest properties that are up for auction by banks. However, to register on NPAsource.com, you will have to shell out Rs 18,000 annually to view some 1,000 NPA notices in a year across India.

How to participate in the auction
Interested bidders must submit their bids in a sealed envelope to the bank. Along with the bid, the bidder has to pay 'earnest money deposit'. This deposit is usually 5-10 per cent of the value of the property auctioned. However, this deposit will be refunded in case the bidder doesn't win the bid. Some banks may also charge a nominal fee as tender fees. On the auction day, the sealed envelopes are opened in front of the bidders and the highest bid is announced.

Bidders may or may not get another chance to revise their bids. If the bank has failed at achieving the reserve price, they may postpone the auction or even reduce the valuation of the property. This revision may take another two-three months.

What if you win the bid?: 
You have to pay up to 25 per cent of your bid amount within 24 hours to confirm the purchase. The balance amount can be paid in a month or two. This time period given to the buyer varies from banks to banks.

R K Bansal, executive director (retail banking) at IDBI bank, says, "If the property value is huge, the buyer can negotiate with the bank and discuss the tenure within which he can pay the balance amount. The buyer can also get loan to buy that property, if he has a decent credit score."

Since the bank had previously lent against the property, there is clarity on property title. However, these properties are sold on an 'as-is' basis, which means the properties are sold just the way it had been possessed.

"Since the property has been possessed by the banker forcefully, there are chances there may be pending dues or even litigations. For instance, the owner may have some unpaid property taxes, electricity/water bills, society dues and so on. Hence, don't get carried away by the low price of the house, there are chances you may have to pay for such liabilities," says Anshuman Jagtap, advocate at Hariani & Co.

Banks may or may not have information about such liabilities, so it's best to hire a property lawyer and check for such loop-holes before finalising the deal.

http://www.business-standard.com/article/pf/bank-auctioned-homes-may-be-cheaper-113042100495_1.html

New Sarfaesi to break loan pricing deadlock

Published: Friday, Dec 14, 2012, 1:58 IST 
By Megha Mandavia & Aswathy Varughese | Place: Mumbai | Agency: DNA

Revival of financially sick businesses has just become easier. For, the long-standing deadlock between banks with bad loans to sell and asset reconstruction companies (ARCs) over pricing issues may end finally.

This week’s amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) now allow ARCs to convert defaulting company’s debt into equity.

Asset Reconstruction Company (India) Ltd or Arcil, India’s biggest ARC, said it may now be able to offer better deals to banks for bad loans. 
R K Bansal (pictured), executive director of IDBI Bank, said other ARCs may follow suit. “They can now pay a better price to banks to buy ailing assets as they will now have more wherewithal to recover their dues.”
The ARC sector has been asset-starved for the past two years. Banks had been expecting higher prices for their bad loans than what ARCs were ready to offer. 
Arcil’s MD and CEO P Rudran said, “At the due diligence stage, we won’t decide on pricing. But, if we are able to assess the value (of the non-performing asset or bad loan concerned), then, perhaps, we would be able to pay a little more. We may reduce the discount. Revivals will focus onbusiness viability. We will help as per the requirements of the ailing company concerned. We will resell the stake the moment such a company recovers.”
But some doubt if everything would be hunky dory for ARCs now. P H Ravikumar, MD and CEO of Invent Assets Securitisation and Reconstruction, for one, said acquisition of bad loans from banks still remains a challenge. 
“More than the pricing issue, the deadlock lies in banks’ under-provisioning for bad loans. If a non-performing asset is under-provided, it will reflect in the price at which banks are willing to give ARCs the bad loans,” said Ravikumar. 
megha.mandavia@dnaindia.net , aswathy.rachel@dnaindia.net

http://www.dnaindia.com/money/report_new-sarfaesi-to-break-loan-pricing-deadlock_1777355

ICRA assigns `AA+` rating on IDBI Bank

Source: IRIS (29-MAR-12)

Credit rating agency, ICRA has assigned AA+ rating with a stable outlook to the Rs. 3500 billions (enhanced from Rs 25 billions) Senior & Lower Tier II Bondsprogramme of IDBI Bank (IDBI). ICRA has withdrawn AA rating with a stable outlook from the unutilized Rs 10 billion Upper Tier II Bonds.

IDBI Bank also has AA+ rating with stable outlook, AA rating with stable outlookand MAA+ on the other outstanding Long Term and Lower Tier II Bonds, Upper Tier II and Perpetual Bonds, and Fixed Deposits, respectively.

IDBI`s ratings factor in the implicit sovereign support enjoyed by the bank in its role as one of the larger commercial banks in the country and the demonstrated support from Government of India (GoI).

The ratings also take into account the highly competitive operating cost structure, comfortable regulatory capitalization post the impending equity infusion in March 2012 which will boost the core capital and the bank`s improving presence in the retail segment and non-urban centres.

The ratings are constrained by the moderate (though improving) low core profitability1 from operations consequent to low interest margins which though improving is likely to remain weaker to peers over the medium term.

The rating also takes into account the relatively high ALM (Asset Liability Mismatch) gap in the short term buckets while acknowledging the current excess SLR investments and the steps taken by the bank to reduce the same.

ICRA`s has taken note of the relatively large amount of restructuring done by the bank and the deterioration in the asset quality indicators of the bank which are expected to remain in pressure in the short to medium term.

ICRA has also taken note of the merger of wholly owned subsidiaries IDBI (Q,N,C,F)* Home Finance and IDBI Gilts.

With the bank in Q4FY11 and the likely synergies from the merger. The ability of the bank to manage its exposure to power and airlines sector which is currently seeing some headwinds and its relatively higher proportion of restructured assets is the key rating sensitivity.

Recent Results:

For the nine months ended Dec 31, 2011, IDBI reported a net profit of Rs 12.61 billion on a total income of Rs 186.32 billion as against Rs. 1134 billion and Rs 149.84 billion respectively for 9MFY11. The improvement in the profit was driven by the improvement in the net interest income and the core fee based income along with reduction in credit costs for the bank. However, the bank witnessed muted business growth and increase in provisions towards large NPAs and restructured assets in Q3FY12. Net profitability of the bank dipped by 21% QoQ to Rs 4.1 billions in Q3FY12. Capital Adequacy Ratio of the bank stood at 13.53% (Tier I of 7.54%) while its Gross NPA stood at 2.94% and Net NPA stood at 1.96% as on Dec-11. Fresh slippages of the bank increased to Rs 12.34 billion in Q3FY12 (Rs 9.25 billion in Q2FY12), the bulk of which was from a single aviation account. Total restructured assets of the bank also remained high at 6.10% of total advances as on December 2012.

Shares of the company declined Rs 4.05, or 3.87%, to settle at Rs 100.55. The total volume of shares traded was 1,207,276 at the BSE (Thursday).