In a hurry to recover loans, banks ignore the rules of the game

In their hurry to recover unpaid loans, banks seem to be ignoring the basic rules of the game. Borrowers say the recovery notices they get lack detailed information and proper authorisation.

For example, Jaishankar Sharma (name changed), who is in the business of trading machinery, was shocked when he got such a recovery notice.

Sharma defaulted on the payment of his loan after his business faced some financial trouble. Three months after he stopped servicing his dues, his bank slapped a SARFAESI notice on him.

A notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, allows banks to liquidate the pledged assets of borrowers after a notice of 60 days. The Act, however, also allows borrowers to raise objections to the notice and it is incumbent on the bank to respond to those objections within seven days (which has now been increased to 14 days). Many borrowers are unaware of this right.

Sharma’s bank, which asked him to repay the dues within 60 days, did not mention his right to raise objections to the notice.

A distraught Sharma approached bad loans consultant Visswas Paanse, who helps small and medium enterprises ward off “half-baked and threatening notices”.

The consultant helped Sharma file a detailed objection to the bank’s notice. The bank, in its reply, chose to overlook many of the objections raised by Sharma, and also took more than three months to respond against the then mandated seven days.

For instance, the bank failed to respond to objections such as why it put an “extra” burden on the borrower by charging him a higher interest rate. It also did not reply to questions as to why restructuring the loan was not considered an option before issuing the notice.

Business Line has seen both the notice issued by the bank and the reply filed by the borrower.

Small enterprises According to consultant Paanse, his firm was able to successfully ward off such “threatening” notices issued by banks to about 30 micro, small and medium enterprises in 2013.

“These notices put the borrowers under undue pressure. Banks are not following the RBI guidelines on SARFAESI,” he says.

Another borrower, in his 60s, had locked himself and his family in his office for seven days fearing seizure of his property by bank. Later, the Bombay High Court granted a stay on the banks’ action against the borrower. None of the borrowers wanted to be named.

“I do not advise my clients to not pay the bank back. That they have to, but they should do so from the money generated from the business and not by selling off their assets,” Paanse adds.

Arun Tiwari, Chairman and Managing Director of Union Bank of India, defended the action taken by the banks.

“The only moot questions are if the borrower has borrowed the money and if he has defaulted on his payments. These issues of mistakes in notices are just technical issues. We also learn from our mistakes. Public sector banks are much more lenient when it comes to dealing with borrowers,” he said.

Banks are under pressure to recover unpaid loans as their non-performing assets have been rising recently. As on December 2013, the total bad loans of all commercial banks in the country stood at a little over ₹2.40-lakh crore.

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