According to bankers and industry experts, the larger number of demand and possession notices are also the outcome of stress from the first wave last year that had been masked by the moratorium
Mumbai: Lenders are attempting to take control of more properties used as collaterals against loans and put them up for sale as borrowers fail to repay post two waves of covid-19.
Advertisements by lenders, both public and private sector, of defaulting borrowers whose homes they want to repossess under the Sarfaesi Act are a common sight these days. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002 enables banks and financial institutions to sell collateralized properties if a borrower defaults on repayments. As the effect of the two waves of covid-19 unravels, even mortgages, once thought to have the least likelihood of default, have not remained quite resilient. According to bankers and industry experts, the larger number of demand and possession notices are also the outcome of stress from the first wave last year that had been masked by the moratorium.
“There is no denying that we are seeing stress rise in mortgages after the pandemic. Many borrowers who had taken the moratorium could not repay. We hope as economic activity picks up pace, the situation would change" said a banker at a large public sector bank.
According to him, apart from the current stress, there is some amount of recovery backlog from the last year when lenders went a tad easy on stressed borrowers. The banker cited above said that it takes at least six months from the start of recovery proceedings for them to put up a property for sale.
“After issuing a demand notice to the defaulting borrower, you have to wait for 60 days to take possession of the property, unless he/she repays. For taking over the property, banks have to move court and it takes another couple of months for the outcome. After that, valuations and other exercises are done in preparation of the sale," he said.
For instance, on 18 August, Axis Bank published demand notices against 30 mortgage defaulters. The bank said that for these borrowers, the demand notices could not be served on their last known addresses and therefore it had to issue public notices. The notices showed that a majority of them had turned bad between October and December last year and notices were issued in April.
That there is palpable stress in mortgages was evident when India’s largest lender State Bank of India (SBI) reported a rise in bad loans from the sector. Its outstanding mortgage portfolio stood at ₹5.05 trillion as of 30 June and saw a 59 basis point (bps) sequential rise in bad loans.
Experts pointed out the extent of stress can be gauged from the fact that private lenders have also increased their use of the Sarfaesi Act route. Unlike the public sector banks, private lenders prefer bilateral deals and one-time settlement offers to recover smaller bad loans.
That said, it isn’t quite easy to find buyers for repossessed homes. For starters, existing litigation in such properties make it difficult for new buyers, many of whom might be unaware of the pitfalls of such auctions.
“There may be flaws in the property or its title which may are not necessarily made apparent at the time of auction. Also, as is the case with any kind of resale residential property, a legal transfer and re-registration would be required," said Anuj Puri, chairman of Anarock Property Consultants.
Puri added that if the property is in an extremely old building, it may never have been officially registered in the first place and registering it now will make the current buyer responsible for paying the stamp duty in arrears.
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