Bengaluru/Mumbai/Delhi: Electronic auctions are becoming the preferred tool for banks and some non-banking financial companies (NBFCs) to sell properties confiscated from defaulters to recover some of their money.

Ahmedabad-based Auction Tiger has auctioned 5,500-6,500 properties for State Bank of India in 2017-18 and plans to auction 7,500-8,500 properties for the bank this fiscal year. Auction Tiger is backed by Ahmedabad-based e-Procurement Technologies Ltd and conducts online auctions for banks, asset reconstruction companies and NBFCs.

“The success rate of an auction is 30-40%. If the location and property are good and the price is less than market price, people buy. Not just banks, many asset reconstruction companies (ARCs) and NBFCs are also moving from offline to online auctions now and have approached us," a senior executive at e-Procurement said on condition of anonymity.

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In early September, the government had asked state-run banks to explore setting up a common e-auction platform to sell defaulters’ properties, in a bid to improve loan recoveries at these banks struggling with a mountain of bad loans.

The banking sector is burdened with more than 10 trillion of bad loans as on 30 June 2018 and around 8.7 trillion of this is on the books of public sector banks. While these banks have tried to offload toxic assets to ARCs at a discount, the route has not yielded desired results due to delays.

Pallav Mohapatra, former deputy managing director (Stressed Asset Resolution Group), State Bank of India, and now managing director and CEO of Central Bank of India, said auctions of real estate assets have not been very effective in dealing with stressed loans. Mohapatra has been appointed the head of Central Bank of India after Mint spoke to him last week.

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“We have seen that only 6-7% of the properties put up for sale under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (Sarfaesi) attract bids," said Mohapatra.

While SBI conducts mega e-auctions for commercial and residential properties every few months, it also seeks bidders on a regular basis through three e-auction websites, he added. The bank has teamed up with Auction Tiger, TenderWizard and Bank Eauctions to conduct the auctions of their behalf.

A Punjab National Bank official, who didn’t wish to be named, said the bank has already adopted e-auctions for disposing properties mortgaged to it. “E-auctions are a fair and transparent way to sell properties under the Sarfaesi Act and they are better than manual auctions which were always prone to the deliberate and planned impact of the cartel formation, resulting in lower price fetching," the official said.

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He added that the proposed common e-auction platform will not only save potential buyers’ time and effort to go to individual bank sites to search properties, it will also save banks the expenses related to marketing their auctions at various platforms as this single website will act as a doorway for all future bank auctions.

As on 20 July, bank lending to the commercial real estate sector stood at 1.85 trillion and loans to the housing sector (including priority sector) was at 10 trillion.

All states except West Bengal and Maharashtra allow auctions to be conducted for symbolic possession of a property. In these two states, auctions can only be for physical possession of the property. While symbolic possession involves putting up a notice regarding the sale in the building premises, physical possession involves taking control of the property. After the auction is completed, banks approach the district magistrate or chief metropolitan magistrate seeking approval for possession.

Magicbricks set up an e-auction platform in 2017 and has already conducted a number of e-auctions for PNB Housing Finance Ltd, HDFC Bank Ltd and Axis Bank as well as some developers.

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“The platform has been created for both banks and developers with an aim of allowing the market to determine the price of the properties. The platform is changing the dynamics of e-auction by offering a level playing field through a transparent and fair price discovery system," said Sudhir Pai, CEO, Magicbricks. He added that increasing online transactions have boosted the trend towards e-auctions.

“Banks are sitting on piles of repossessed assets and we see this as a great opportunity for banks to leverage our reach and offer such properties to a wide set of retail customers in tier 1, 2 and 3 cities without investing much in physical infrastructure or manpower," he added.

“QuikrRealty is talking to two banks to e-auction properties and, with banks saddled with stressed assets, we see this as a huge opportunity," said Amit Joshi, national head-commercial, QuikrRealty.

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