Home loan defaults: Demand, possession, auction notices on the rise as delinquencies climb

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August 27, 2021 3:45 AM

A similar trend of auction notices had been observed in the January-March quarter with respect to gold loans. Thereafter, most lenders with a sizeable gold loan portfolio reported a deterioration in asset quality in that segment.

Historically, a home loan is considered the safest variety of credit because there is a security attached to it and most borrowers want to avoid losing their homes.Historically, a home loan is considered the safest variety of credit because there is a security attached to it and most borrowers want to avoid losing their homes.

Demand and possession notices for apartments bought using home loans have been on the rise as delinquencies climb in the segment. Over the last few weeks, banks and non-banking financial companies (NBFCs) alike have sharply increased the volume of homes they repossess and put up for auction.

The notices have been put out by lenders across the public and private sectors, with institutions like IDBI Bank, Union Bank of India, Bandhan Bank, IIFL Home Finance, Tata Capital Housing Finance, Muthoot Housing Finance and Manappuram Home Finance, among others. The recovery amounts fall in the wide range of just under Rs 1 lakh and up to Rs 95 lakh.

“It is true that banks across the industry have become active about making recoveries. There are three processes they are employing – aggressive collections, resolution of the accounts wherever possible, and finally liquidation of whatever stock they have,” said a senior executive with a mid-sized private bank. The trend of recoveries through auctions are likely to continue into the third and fourth quarters of the current year, he added.

A similar trend of auction notices had been observed in the January-March quarter with respect to gold loans. Thereafter, most lenders with a sizeable gold loan portfolio reported a deterioration in asset quality in that segment. Bankers said that the notices work more as a wake-up call for the borrower than as an actual announcement of auctions.

Of course, there are stages to making recoveries through the auction route. The lender first issues a demand notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, seeking repayment of outstanding dues within a stipulated period. If the demand is not met, it then puts out a possession notice and then finally a sale notice. All three kinds of notices now cover entire pages of newspapers.

Historically, a home loan is considered the safest variety of credit because there is a security attached to it and most borrowers want to avoid losing their homes. However, the second wave of the pandemic has dealt a huge blow to some borrowers, causing home loan slippages to rise.

Bankers said that the pain is severest in the self-employed category because their income streams have been affected due to repeated lockdowns and mobility restrictions. Unlike in the first half of FY21, there is no moratorium in the current year and that has caused higher delinquencies. State Bank of India’s (SBI’s) gross non performing asset (NPA) ratio in the home loan segment stood at 1.39% as on June 30, though it improved to 1.14% thereafter.

SBI chairman Dinesh Khara said after the bank’s Q1 results that almost 50% of the bank’s home loan book is to the non-salaried class. “Many of the SME borrowers also would be the ones to avail home loans. I think the essential stress seen in this book is on account of disruption in cash flows for the SMEs,” Khara said.

Analysts expect collection trends to improve in the days ahead. In a recent note, Emkay Global Financial Services said that banks expect some NPAs from the inflated special mention account (SMA) pool to spill over into Q2, while the restructured pool too should inch up. “Collection activity may return to the pre-Covid level in Q3, subject to no severe Covid third wave. Within retail, recovery rates should improve in secured mortgages and gold loans as stress formation in those segments was higher than expected due to impaired mobility, which has normalised now,” Emkay said.

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