The global economic meltdown began when housing financiers in the USA
started indiscriminately cracking down on borrowers. This was later on
named the Housing Tsunami. If we are not be similarly placed in the
near future when no one might be looking, our ways in these matters
need changes of motives and procedures.


I recently came across HDFC, the largest private housing financiers in
India advertising that their Cochin office had taken over some
properties for non-repayment. The majority of the cases had total
outstanding balances of less than Rs. 1.75 lakhs, to read from the
advertisements. Considering that even a Cent of housing property in
Ernakulam district is worth more than Rs. 2 lakhs, this seemed to be
over enthusiasm for some reason on the part of the lenders.



It was seen that these loans had all been taken around 2002-2003 when
the interest rates were around 7 or 8%. Within a few months however,
rates began to climb. Currently, this particular lender charges 12.5%.
The extra interest on each defaulted EMI is 18% additionally. The
pathetic situation of the non-wilfully defaulting borrower can be
imagined. The initial rosy interest rates offered are called Teasers;
to tease the innocent public with!



In the current scenario, the borrower would have to again pay at least
Rs. 5000/- extra per lakh for each year of the loan, to get his title
deeds back in the end even if agreed instalments are regularly
remitted. This is because interest has been raised to 1 ½ times
arbitrarily after getting the borrower to sign for the loan at 7 to 8%
interest. If it be a twenty year loan, he ends up paying Rs. 1 lakh
additionally for each Rs. 1 lakh borrowed, over and above the
originally agreed repayment. If three instalments are defaulted, the
loan becomes an NPA and within 6 months of continued default, this
lender moves in under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
[SARFAESI], no questions asked. This draconian law was put in place to
hide and shift from bank officials, accountability of deliberate bad
loans. The take-over of property draws attention away from official
misdemeanours in processing, sanction and conduct of the bad loans. The
fixing of NPA at the end of three months is even anti-Indian when we
admit our slow pace of national life.



The RBI has laid down that a defaulting borrower should be advised in
advance of the lenders’ intention of deeming him a wilful defaulter;
his objections to it should be  called for and heard. This is not done
by the Company or for that matter, by most banks. It might be that the
default is due to temporary issues like illness or loss of job. What
the non-wilful defaulter receives out of the blue at the end of six
months of default is a Notice telling him that his property would be
taken over if he does not remit the entire dues and costs within 60
days. Till recently, the borrower had to first remit 75% of the dues if
his petition against re-possessing was to be even admitted by Courts.
Even now, the waiving or fixing of such remittance is left to the
discretion of the Judge. While the Act requires the Notice to be issued
only by an authorised officer of the financier, HDFC gets a top lawyer
to issue it. The charges of Rs. 5000/- for that small notice is
immediately loaded into the loan dues.



At the end of the 60 day period, the Company would make a request to
the Collector. The lower officials would then be properly met by the
Recovery agents of the Company and assistance of the Revenue and Police
officials are immediately made available for possession of the house by
the lender.



This procedure at the Collectorate is merely anti-people. Housing field
or elsewhere, it is known that private banks and financiers falsify
their accounts. Anyone that has been taken to Court by the new
generation banks about a Personal Loan knows it. Huge hidden and
coercive charges are loaded into the final dues position. The amount
demanded in recovery is invariably very much more than is legally
eligible. Nevertheless, at the Collectorate, no questions are asked and
the Police and Revenue staff is enthusiastically released to the
Recovery agents.



Ideally, the Collector should make independent enquiries of each case,
call up the defaulter to hear him and only then move to the final
catastrophe. It is from dearly held dwellings that the eviction based
only on the statements of the often fraudulent lenders is to be done!
And no Keralite would ever default on a housing or gold ornament loan
unless it is his suicidal only option. No middle class borrower can
fight the financier in Court because of the financial might of latter
to get the costliest lawyers.



I enquired about why the final dues in the aforementioned cases were
less than Rs. 1.75 lakhs and yet such drastic measures were employed. I
was astounded to hear that the actual dues are even less! And this is
how it happens.



RBI has instructed that if the dues are Rs. 1 lakh or less, coercive
measures of recovery should not be used. Such dues are to be only
settled on arbitration. To overcome this difficulty, the Company has
ways of bringing the balance to above one lakh. The intended possession
of the property is advertised in all the editions of the biggest
newspaper of the Company’s choice. Advertising costs come to around Rs.
50000/-. Each demand call by the Recovery officials is charged to the
borrower at a minimum of Rs. 750/- per visit. Expenses of recovery
procedure at the government official levels are at least Rs. 25000/-
and may go up to any amount. Thus even if the loan dues is only Rs.
20000/-, the amount claimed for recovery is easily boosted to above
Rs.1 lakh. There is no mechanism anywhere to check costs of such
recovery procedure. Neither government nor the law comes to the poor
innocent defaulter’s aid. In the cases we talked about earlier, the
actual dues were only around Rs. 75000/- to Rs. 90000/-.



It might be that the Company’s Recovery officers who engage the
Recovery agents etc have vested interests. I was told that the same
group of buyers purchase all the property put to auction by the
Company, in different names. One might suspect some collusion here. The
Recovery officers of Kochi told me that their NPA rate is 0.7% as
against 0.8% of the Company’s national average and therefore, they do
not care about customers’ difficulties. Their motive is to reduce their
NPA rate further. They cannot be bothered about any social commitment.
They advise the borrower to sell the property and offer to find buyers.
Imagine a borrower in temporary difficulties being thus coerced into
selling his 10 cents with house so that a Rs. 10000/- or Rs. 20000/- of
overdues can be normalised in the Company’s books. They gloat over it
that in the case of a KSEB employee of Angamaly with an overdues of Rs.
24000/-, intervention by even Sri. Oommen Chandy could not prevent them
from seizing the 10 cents and house near Nedumbassery airport!



At least three fourths of all the houses built in Kerala during the
past ten years, especially by the middle classes and NRIs, are
mortgaged to companies like this and new generation banks. It is
obvious that a predatory style is adopted by the financiers. If we do
not move in to put in checks now itself, the consequences might be
catastrophic.



The lender has rights to be repaid. At least in the housing sector
however, a humane approach to recovery is not a sin. Lenders should be
made to hear the borrowers as stipulated by RBI, before treating them
as wilful defaulters.
As said in the RBI’s handbook on NPAs, one is
a wilful defaulter only if he has funds and yet, does not remit. The
SARFAESI is not applicable to agriculture debts, dues below Rs One
lakh; and to non-wilful defaulters as per the Act. This is so even
for corporations with dues of Rs. 50 crores or above. An NRI or
employee that loses a job or falls ill does not come under this
category. The bankers and financiers do not however, take this into
account. The procedure for treating such borrowers has also been
stipulated by RBI. The lender should only re-structure such loans
allowing the borrower more time or lesser instalment amounts. This is
at least thought of by our lenders only in the case of very big
borrowers to help them. And in the case of PSBs, a final assistance is
always done to big borrowers by settling for a much lower amount than
the dues. Often, the money thus given runs to crores. But not so, to
middle class house owners with two or three lakh debts, trying to cling
on to their only tangible asset!


Collectorates should hear the defaulter before acquiescing to the
arbitrary requests of lenders to help them take over houses and evict
the owners. They should if necessary, even intervene between the two
parties so that emotional and other disasters do not occur. Any popular
administration should do so.



Unfortunately, the media that has to consider advertisement revenues
from big lenders often fail to highlight this situation. A covert
meltdown therefore, awaits Kerala’s middle classes to whom a house of
their own is the ultimate dream, only due to administrative and media
apathy.