By : M.S.Yatnatti Editor and Video Journalist Bengaluru : A subdued loan demand from businesses is increasing competition in home loans, leading to a rise in the number of self-employed individuals getting mortgages. Home loans to self-employed now account for 30% of mortgages as against 20% earlier. But the flip side is that delinquencies are also rising. If the debtor has not paid its interest within 90 (ninety) days from the "due date” it becomes NPA. Thisthe "due date” is one year as intrest chaged is on yearly basis. But different banks different due dates .Few take daily basis and few take weekly basis and few take monthly basis and few take yearly basis. Going by these two directions under the Act, the borrower should be getting at least 17 months' time before the Bank could proceed against the defaulting borrower .But few banks have misused and applied the SARFAESI Act after 3 months of default and sold the assets of borrower and reportedly several lakh home loan borrowers are in trouble.RBI should come with clear guide lines on this aspect and save borrows from ruthless banks .
Reportedly several borrowers have been put under deep trouble and mental torture by issuing "demand notices” "possession notice” and "sale notice” violating SARFAESI Act and without classifying the loans as NPA under to Section 2(1) (o) of the SARFAESI Act. According to Section 2(1) (o) of the SARFAESI Act dealing with non-performing assets and according to SARFAESI Act an NPA is defined as'NPA is a loan which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset'. Further, a circular released by the Reserve Bank of India (the RBI) in 2014 states that a loan can be classified as sub-standard, doubtful or loss asset if the debtor has not paid its interest within 90 (ninety) days from the "due date”. This means that a loan account would be categorized as an NPA if its interest remains due for more than 90 days. And the interest becomes due only after one year as loan interest is per annum and "due date”is after one year (Banks and NBFC are not like loan sharks who take daily interest or weekly interest or monthly interest .Fact is interest rate is per annum ) and it becomes NPA only after one year and 90 days (No where in the SARFAESI Act it is said three EMIs) and then one year it remains in "substandard category” of NPA and then it remains further one year in "doubtful or loss asset” and after this only SARFAESI Act is applicable to issue "demand notices” "possession notice” and "sale notice”. The regime provided under the 2002 Act could not be triggered till such time the loan account is classified as a Non-Performing Asset (in short NPA).The Bank cannot issue "demand notices” "possession notice” and "sale notice”if loan is not declared inbooks of accounts ofBankas NPA in sub-standard, doubtful or loss asset Categoryfor invocation of provision of Section 13(2) of the SARFAESI Actas Section 2(o) defines "non-performing asset" as "non-performing asset" means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, please note thatas the declaration of an asset or account to be a non-performing asset is a condition precedent to invoke the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,. Reportedly The RBI's asset quality review in 2015 pushed up the level of gross NPAs to large industry from a little under Rs 1.2 lakh crore at the end of March 2015 to Rs 5.3 lakh crore at the end of last December a jump of four-and-a-half times in 33 months. Indiscriminate lending in boom years and the Reserve Bank of India's (RBI's) pressure on banks to recognise sticky assets on their books have resulted in some lenders having to classify over 40% of their loans to large industry as non-performing assets (NPAs), or bad debt, putting pressure on their profits.According to RBI's timelines :If the account does not reflect credits into the account, 90 days preceding the date of balance sheet of the firm. Temporary deficiencies like late/ non-submission of stock statements or balance outstanding exceeding the drawing power, non-renewal of limits should not get categorized as NPA. And If the borrower does not pay three instalments continuously after 90 days but up to 12 months the account becomes sub-standard and NPA. Section 13 (2) empowers the Bank/ FI to serve a notice to the borrower for taking possession of the assets held as security for the money lent by it. But there is precursor to this action: the Bank/FI shall serve notice to the borrower to discharge his full liabilities within 60 days from the date of notice that should also detail out the legal consequences and penal provisions. Going by these two directions under the Act, the borrower should be getting at least 17 months' time before the Bank could proceed against the defaulting MSMEs.The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is a powerful instrument in the hands of the banks and financial institutions (FIs) as secured creditors. This Act helps them enforce securities held as collateral to loans disbursed by them should such loans turn out as non-performing assets (NPAs) during the currency of the loan without interference from the Courts. Section 13 of the Act gives power to the secured creditor even to evict the tenant. It is our observation that the banks have been overenthusiastic in taking recourse to SAFRAESI Act provisions as a first resort of recovering the micro, small and medium enterprises (MSME) loans, mostly violating guidelines of Reserve Bank of India (RBI).