I recently came across HDFC, the largest private housing financiers in India advertising that their Cochin office had taken over some properties for non-repayment. The majority of the cases had total outstanding balances of less than Rs. 1.75 lakhs, to read from the advertisements. Considering that even a Cent of housing property in Ernakulam district is worth more than Rs. 2 lakhs, this seemed to be over enthusiasm for some reason on the part of the lenders.
It was seen that these loans had all been taken around[protected] when the interest rates were around 7 or 8%. Within a few months however, rates began to climb. Currently, this particular lender charges 12.5%. The extra interest on each defaulted EMI is 18% additionally. The pathetic situation of the non-wilfully defaulting borrower can be imagined. The initial rosy interest rates offered are called Teasers; to tease the innocent public with!
In the current scenario, the borrower would have to again pay at least Rs. 5000/- extra per lakh for each year of the loan, to get his title deeds back in the end even if agreed instalments are regularly remitted. This is because interest has been raised to 1 ½ times arbitrarily after getting the borrower to sign for the loan at 7 to 8% interest. If it be a twenty year loan, he ends up paying Rs. 1 lakh additionally for each Rs. 1 lakh borrowed, over and above the originally agreed repayment. If three instalments are defaulted, the loan becomes an NPA and within 6 months of continued default, this lender moves in under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI], no questions asked. This draconian law was put in place to hide and shift from bank officials, accountability of deliberate bad loans. The take-over of property draws attention away from official misdemeanours in processing, sanction and conduct of the bad loans. The fixing of NPA at the end of three months is even anti-Indian when we admit our slow pace of national life.
The RBI has laid down that a defaulting borrower should be advised in advance of the lenders’ intention of deeming him a wilful defaulter; his objections to it should be called for and heard. This is not done by the Company or for that matter, by most banks. It might be that the default is due to temporary issues like illness or loss of job. What the non-wilful defaulter receives out of the blue at the end of six months of default is a Notice telling him that his property would be taken over if he does not remit the entire dues and costs within 60 days. Till recently, the borrower had to first remit 75% of the dues if his petition against re-possessing was to be even admitted by Courts. Even now, the waiving or fixing of such remittance is left to the discretion of the Judge. While the Act requires the Notice to be issued only by an authorised officer of the financier, HDFC gets a top lawyer to issue it. The charges of Rs. 5000/- for that small notice is immediately loaded into the loan dues.
At the end of the 60 day period, the Company would make a request to the Collector. The lower officials would then be properly met by the Recovery agents of the Company and assistance of the Revenue and Police officials are immediately made available for possession of the house by the lender.
This procedure at the Collectorate is merely anti-people. Housing field or elsewhere, it is known that private banks and financiers falsify their accounts. Anyone that has been taken to Court by the new generation banks about a Personal Loan knows it. Huge hidden and coercive charges are loaded into the final dues position. The amount demanded in recovery is invariably very much more than is legally eligible. Nevertheless, at the Collectorate, no questions are asked and the Police and Revenue staff is enthusiastically released to the Recovery agents.
Ideally, the Collector should make independent enquiries of each case, call up the defaulter to hear him and only then move to the final catastrophe. It is from dearly held dwellings that the eviction based only on the statements of the often fraudulent lenders is to be done! And no Keralite would ever default on a housing or gold ornament loan unless it is his suicidal only option. No middle class borrower can fight the financier in Court because of the financial might of latter to get the costliest lawyers.
I enquired about why the final dues in the aforementioned cases were less than Rs. 1.75 lakhs and yet such drastic measures were employed. I was astounded to hear that the actual dues are even less! And this is how it happens.
RBI has instructed that if the dues are Rs. 1 lakh or less, coercive measures of recovery should not be used. Such dues are to be only settled on arbitration. To overcome this difficulty, the Company has ways of bringing the balance to above one lakh. The intended possession of the property is advertised in all the editions of the biggest newspaper of the Company’s choice. Advertising costs come to around Rs. 50000/-. Each demand call by the Recovery officials is charged to the borrower at a minimum of Rs. 750/- per visit. Expenses of recovery procedure at the government official levels are at least Rs. 25000/- and may go up to any amount. Thus even if the loan dues is only Rs. 20000/-, the amount claimed for recovery is easily boosted to above Rs.1 lakh. There is no mechanism anywhere to check costs of such recovery procedure. Neither government nor the law comes to the poor innocent defaulter’s aid. In the cases we talked about earlier, the actual dues were only around Rs. 75000/- to Rs. 90000/-.
It might be that the Company’s Recovery officers who engage the Recovery agents etc have vested interests. I was told that the same group of buyers purchase all the property put to auction by the Company, in different names. One might suspect some collusion here. The Recovery officers of Kochi told me that their NPA rate is 0.7% as against 0.8% of the Company’s national average and therefore, they do not care about customers’ difficulties. Their motive is to reduce their NPA rate further. They cannot be bothered about any social commitment. They advise the borrower to sell the property and offer to find buyers. Imagine a borrower in temporary difficulties being thus coerced into selling his 10 cents with house so that a Rs. 10000/- or Rs. 20000/- of overdues can be normalised in the Company’s books. They gloat over it that in the case of a KSEB employee of Angamaly with an overdues of Rs. 24000/-, intervention by even Sri. Oommen Chandy could not prevent them from seizing the 10 cents and house near Nedumbassery airport!
At least three fourths of all the houses built in Kerala during the past ten years, especially by the middle classes and NRIs, are mortgaged to companies like this and new generation banks. It is obvious that a predatory style is adopted by the financiers. If we do not move in to put in checks now itself, the consequences might be catastrophic.
The lender has rights to be repaid. At least in the housing sector however, a humane approach to recovery is not a sin. Lenders should be made to hear the borrowers as stipulated by RBI, before treating them as wilful defaulters. As said in the RBI’s handbook on NPAs, one is a wilful defaulter only if he has funds and yet, does not remit. The SARFAESI is not applicable to agriculture debts, dues below Rs One lakh; and to non-wilful defaulters as per the Act. This is so even for corporations with dues of Rs. 50 crores or above. An NRI or employee that loses a job or falls ill does not come under this category. The bankers and financiers do not however, take this into account. The procedure for treating such borrowers has also been stipulated by RBI. The lender should only re-structure such loans allowing the borrower more time or lesser instalment amounts. This is at least thought of by our lenders only in the case of very big borrowers to help them. And in the case of PSBs, a final assistance is always done to big borrowers by settling for a much lower amount than the dues. Often, the money thus given runs to crores. But not so, to middle class house owners with two or three lakh debts, trying to cling on to their only tangible asset!
Collectorates should hear the defaulter before acquiescing to the arbitrary requests of lenders to help them take over houses and evict the owners. They should if necessary, even intervene between the two parties so that emotional and other disasters do not occur. Any popular administration should do so.
Unfortunately, the media that has to consider advertisement revenues from big lenders often fail to highlight this situation. A covert meltdown therefore, awaits Kerala’s middle classes to whom a house of their own is the ultimate dream, only due to administrative and media apathy.
