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Know your rights in case of a default

WITH the Reserve Bank of India (RBI) raising its key policy rates, the possibility of yet another round of hikes by banks looks very real. For those borrowers who are already struggling to repay their loans, the rate hike could set the alarm bells ringing. If you are finding it difficult to repay your loan and want to avoid being branded a defaulter, you can consider approaching the bank for an amicable settlement. You also need to keep yourself informed about your rights. The RBI also has norms that are taken into consideration under specific circumstances. There is a well-laid out procedure for repossessing the asset, provisions regarding a final chance to repay and procedure for sale, in addition to the stringent guidelines on recovery agents' conduct.


   In case of secured assets, banks initiate the procedure for taking it over in the event of a default, as the last resort. Usually, banks invoke the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act to take over the property. The Act states that such a notice cannot be issued until the borrower's account with the bank is classified as a non-performing asset (NPA); that is, when it is 90 days overdue. Under the Act, it has been prescribed that a bank needs to issue a 60-day demand notice to the borrower. If s/he fails to make the repayment, then the bank can go ahead with sale. Before commencing the process, the bank has to serve a further 30-day notice regarding the sale of property. Also, there are guidelines on the procedure for the sale to make sure the borrower is in the loop. This apart, the sale can also take place on the basis of terms and conditions agreed upon by the bank and the borrower. If you anticipate your inability to repay, you can initiate the process yourself — you can introduce a prospective buyer to the bank or inform the bank about your intention to sell the property to clear outstanding dues.

   Upon sale, if the proceeds exceed the outstanding loan amount, the bank is required to return the amount immediately or within the time-frame prescribed, if any, in the agreement. In case of a public auction, the court, stipulates the time frame for the same.

 

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