Recovery of bank dues
If the borrower defaults on his loan for six continuous months, he is given a 60-day notice period but if he still fails to repay, banks issue another 30-day notice period. In case the borrower does not pay even during this period, his loan is declared part of the bank’s non-performing asset (NPA).
These properties are auctioned to recover losses under the Sarfaesi Act ( Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002).
Properties are valued by a professional valuer before the auction. The valuation is generally conservative as banks only try to recover the amount that is outstanding.
Banks are not allowed to pocket gains from a distress sale except to recover their dues and if the bid amount is higher than the amount of the loan default, the remaining amount will have to be paid back to the defaulting borrower.
It is generally a distress sale because the aim behind holding the bid is primarily to recover the partial amount of the property. The market price of the property in the area will always be higher than the value at which the bank had loaned the property.
Those i nterested i n a property, submit their bid to a bank along with a minimum deposit which is a certain percentage of the reserve price. This amount is refundable in case the bidder decides to withdraw or does not win.
If the bidder wins, he pays the 25% of the bid amount to confirm the purchase and the remaining amount in the next 10 to 15 days. He can avail a loan for such a property.