Instances of public auction of assets is increasing in Goa as loan recovery becomes a major exercise by banks and financial institutions, reports Shoma PatnaikIf you are a reader of newspapers you are sure to have spotted notices of auctions issued by banks and financial institutions. These auction notices are published fairly regularly these days. Buildings, offices, gold and vehicles are put on the auctioneers block as banks and financial institutions and their agents go on a loan recovery overdrive.
Largest lender SBI held a resolution week last month wherein genuine loan defaulters could come at an amicable solution with the bank. SBI christened the programme as ‘Rin Samadhan Week’ and in an interview SBI chairperson Arundhati Bhattacharya said that if people (defaulters) don’t come to us we will “go ahead and auction the stuff.”
SBI is among the banks in Goa which is started auctioning off borrowers assets but other commercial banks are doing it too. Loan amounts are varying. It is as less as Rs 18 lakh in some cases as ground level check reveals that banks are becoming stringent in recovering every penny. Urban co-operative banks are also frequent in putting in auction notices but topping the list is the gold financing companies from whom public sale of customer’s jewelry is with clockwork regularity.
Banks hold public money and they have to safeguard it, says an official of SBI, Panaji. A loan that is availed by a customer has to be repaid, he says. Auction notices are not the focus of SBI’s activities but a person who has taken a car loan, driven the vehicle for several years and got money to pay for petrol must certainly be expected to repay. The issue of loan recovery is highlighted in Goa because lending is less. It is reflected in the low credit-deposit ratio of average 30 per cent, he says.
According to bankers, mining industry closure is put mining companies and stakeholders under stress. However there are other sectors where banks are facing recovery problems. Defaulters are coming up in auto and home loans with resident’s attitudes towards default going through a sea change. In the past Goans were model customers but now they are turning into dodgy clients and refraining from paying back in time, are the opinion of several bankers.
Further small customers are not the only defaulters. The culprits are businessmen and industries who have become brazen in holding back repayment. Mounting industrial sickness is an indication of stressed accounts of forthcoming recovery measures.
Loan recovery measures are getting frequent because of competition and to show profits. NPA classification norms have become strict. An installment that is not paid in 90 days requires the loan to be classified as bad. Banks have to make provisions for the non-performing asset (NPA) . It lowers profits and affects the share capital. It adversely impacts investor’s confidence. Share holders expect performance, says the officer from lead bank.
Ground level check reveals that the mechanism for loan recovery varies between institutions and auction of assets is the last stage in the recovery process. The early steps are reminders, follow-up calls, persuasion, legal notices and finally the public auction. Personal contact is of great help in resolving the issue says a branch manager who regularly calls up customers if they are tardy with the EMI.
Urban co-operative banks according to experts have a special recovery mechanism wherein cases are referred to arbitrator. The arbitrator, appointed by the Registrar of Co-operative Societies (RCS) functions like a court and passes orders. The order is then executed by the co-operative. According to co-operative bank officials, recovery is a problem with real estate loans advanced in early years when the sector was booming. Moreover small unsecured borrowers are recent offenders in repayments.
A defaulting account is a losing game to a bank, the SBI official adds. Therefore measures are taken as quickly as possible to avoid the loan going bad. Banks do not wait for the situation to become irreversible but take prompt action to prevent the slide.
Hoodlum agents employed by private banks made the recovery process sinister in the past. Customers were attacked after recovery agents forcibly took away cars and entered homes to seize consumer durables. Strong arm tactics by agents was a major issue during 2009 after which the RBI stepped in with guidelines. Ground level check reveals that recovery agencies still exists but they have become professional. As per RBI norms a person can be employed as an agent only after training and after passing an exam on debt recovery.
With consumer forums safeguarding customer rights, banks have got smart about the recovery process. They do not want to do anything to spoil the image, said an SBI officer and prefer to follow the official route for the recovery process.
Recovery of bad loans is currently a major issue among all banks and financial institutions in India with the RBI exhorting lenders to get back debt from customers. The RBI is advised banks to take ownership if loan is not paid. Banks are also given permission to appoint experts to reduce debt. For large corporate borrowers banks are asked to play a role in turning around the company.
Meantime you can expect the auction notices to gather momentum as lenders take to the last resort to get their money back.
Banks to commence recovery after OTS scheme ends
Goa’s Debt Relief or OTS Scheme for mining borrowers launched by the government in September 2014 is aimed at bringing about final closure to the unresolved issue of mining loans. After mining borrowers announced their inability to repay the government stepped in with assistance through contribution from state funds. The OTS scheme is aimed at lowering the loan burden of the borrower and also for banks to get back their money.
All PSU banks as well as the state urban co-operative banks are a part of the scheme while beneficiaries are the truck, barge owners and mining equipment borrowers. As per the scheme commercial banks are writing off 40 per cent of truck loans and 30 per cent of barge loans. They are also waiving interest accumulated after September 30 2012 (the day of mining closure). Co-operative banks are writing off only the interest on the loans and not the principle.
Of the remaining 60/70 per cent of the loan the government is chipping in with 35 per cent, albeit with a limit of Rs 15 lakh for truckers, Rs 20 lakh for mining equipment operators and Rs 35 lakh for barge owners. The scheme according to banker is the most generous since borrowers have to repay just 25 per cent or 35 per cent of their loan. They would be foolish to not take up the offer as lenders are tired of waiting and inclined to auction assets after the scheme ends.
About 800 borrowers have come forward to enlist in the scheme although there are as many as 10,000 truckers and 400 barge owners who have availed loans. So far bankers said that they refrained from taking harsh measures but their patience is wearing thin. They are waiting to go in for auctioning of assets after expiry of OTS scheme.
Along with truckers and barge owners, banks are also going easy on recovering money from other mining related businesses. They too are expected to come under the recovery netting in coming months, a manager said.
Banks are not forced to accept the government OTS scheme if they are unwilling. However most banks have become a part of it because it is the only available option and to put a closure on non-performing assets.
The total exposure of all PSU, private and co-operative banks in Goa to mining stakeholders is estimated at Rs 1,744 crore of which over Rs 200 crore is from local urban co-operative banks. Most of it is turned into NPAs.
The OTS scheme that was initially for a period of six months is given an extension and currently ends in September 2015.