Banks fail to find buyers for attached properties

The number of attached immovable properties is growing fast but banks are finding difficulty to find buyers for these properties. The attached properties are the one whose owners fail to pay the dues/EMIs therefore banks attach such properties from time to time.

According to bank sources every year in Delhi and NCR region more than 125 properties are attached. It is believed this figure might increase as the world is facing a massive market downturn.

Earlier three months ago outside a big kothi in West Patel Nagar a small board used to hang on the gate inviting attention of almost all the passers-by. On the board in bold letters following slogan was written, "This property is attached by the ... bank. Trespassers will be prosecuted."

With the introduction of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) banks have got plenty of powers to take physical possession of properties that are financed by them. In case the borrowers become regular offenders and do not pay EMIs to the bank, along with interest for six months in a row, then banks act speedily.

In case the borrower continues to be the defaulter bank serves a show cause notice to pay the money within 30 days. Sunder Khatri, legal expert on property matters said if the borrower doesn’t act within next 15 days, the bank seals the property. Khatri told after the fixed time banks inform the police station that a particular owner of the property has failed to pay the loan amount to the bank, therefore they will seal his property.

A senior official of SBI told that when bank officials seal any property, they make sure that the local police officials are also present there. Although due to courtesy of securitization acts, banks are able to attach properties in certain circumstances, but the problem starts when banks try to dispose of the property in order to recover their money with interest.

According to VK Suri, an expert on banking affairs as banks have to sell the attached properties and the payment is to done in white money, more often than not, buyers evade buying such properties. More over banks accept payment only through a cheque, thus the new buyer has to pay a huge stamp duty. This creates a big difficulty for the new buyer.

Sunil Jindal, director of SVP group, says that in our country there is no controller for the realty sector so the issue of black money in this business cannot be settled and solved. Jindal added that though everybody knows that black money has a significant role in realty business, till date the government has not taken any corrective measures. In case the government takes some steps to settle the issue of black money, banks will start getting buyers for the attached properties.

A banker acknowledged due to the white money payment provision, people do not take interest in buying attached properties. Suri said therefore banks are left with very few options to deal with this situation, he added, "Attached properties only add to their growing list of non-performing assets."

Therefore, public sector companies buy the attached properties. As the companies prefer to make payments through cheques thus, they buy these properties. But generally banks fail to find any other buyer for attached properties.

PSU banks restructuring loan slabs will offer cheaper home loans

The public sector banks (PSU) are restructuring their loan slabs in order to extend the cap to the consumers. Currently PSUs on loans up to Rs 20 lakh are offering a special rate of 9.25% for the first five years, under a special scheme open till June 30, 2009.

But now the state-run banks will offer 9.25% or less interest rate for the first five years on home loans up to Rs 30 lakh aiming to stimulate housing demand.

Executive informed following this bank are working out to extend the cap for availing of the special offer to Rs 30 lakh through restructured loan slabs and keep the offer open for a longer period.

For instance Corporation Bank has indicated that it will replace two concession slabs of up to Rs 5 lakh and Rs 5-20 lakh with a new slab of up to Rs 30 lakh.

“We are working on restructuring of slabs for home loans to bring down the lowest slab to Rs 30 lakh. We find that 75 % of the demand for home loans was in this segment,” the bank’s chairman and managing director JM Garg informed.

He said the rate of interest for the first five years will have a ceiling set at 9.25% or lower. Mr Garg told, “There is further room for interest rate cuts and our next asset liability committee is to take a call”.

IDBI Bank chief financial officer RK Bansal also confirmed that the bank is having final round of discussions on restructuring of the slabs, whereas other public sector banks such as Canara Bank have already begin the exercise.

It is expected the steps taken by the state-run banks will help in stimulating demand for new homes, which cratered since September last. Indeed, the December quarter saw insignificant growth in housing loan off as compared to the previous quarter.

However the demand for lower-priced houses showed improvement in the March quarter, with developers reducing prices and banks launching special schemes.

In metropolitan cities as well as tier-I and tier-II cities banks witnessed a surge in
demand for sub-Rs 30 lakh home loans.

Kotak Mahindra executive vice-president Kamlesh Rao pointed out, “While home loans in the sub-30 lakh category industry is seeing a higher growth of around 10-15%, the Rs 30 lakh plus category is showing a growth of 5-10%.”

Currently, state-run banks are charging 9.75-10% on loans of Rs 30 lakh.

After restructuring of loan slab monthly payment on a 20-year Rs 30 lakh loan will drop roughly Rs 500 for every 25 basis cut in interest rates.

Thus, a rate of 9.25% or lower could leave Rs 1,500 or more will leave more money in the hands of the buyer every month.

According to the special IBA (Indian banking Association) package open till June 30, housing loans of up to Rs 5 lakh draw a maximum interest rate of 8.5% in the first one year, while loans between Rs 5 lakh and Rs 20 lakh attract 9.25% for the first five years.