Defaulted home loans : increases demand, possession, and auction notices

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As delinquencies rise in the segment, demand and possession notifications for flats purchased with home loans are on the rise. Banks and non-banking financial firms (NBFCs) have both boosted the number of homes they repossess and put up for auction in recent weeks.

Lenders from both the public and private sectors have issued notices, including IDBI Bank, Union Bank of India, Bandhan Bank, IIFL Home Finance, Tata Capital Housing Finance, Muthoot Housing Finance, and Manappuram Home Finance. The amounts recovered range from less than Rs 1 lakh to more than Rs 95 crore.

Concerning gold loans, a similar trend of auction notices was observed in the January-March quarter. Following that, the majority of lenders with a significant gold loan portfolio observed a decline in asset quality in that area. According to bankers, the letters serve as more of a wake-up call for borrowers than genuine auction announcements.

Of course, there are stages to recovering money through auction. The lender first sends out a demand letter under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, requesting that outstanding debts be paid within a certain amount of time. If the demand is not met, a possession notice is issued, followed by a sale notice. All three types of announcements now take up entire newspaper pages.

Because there is security tied to a home loan and most borrowers wish to avoid losing their homes, it has traditionally been considered the safest type of credit. However, the pandemic’s second wave has hit certain borrowers hard, leading home loan defaults to soar.

Self-employed people are feeling the most pain, according to bankers, because their income streams have been impacted by repeated lockdowns and movement limitations. There is no moratorium this year, unlike the first half of FY21, which has resulted in higher delinquencies. The gross nonperforming asset (NPA) ratio of State Bank of India (SBI) in the residential loan segment was 1.39 percent as of June 30, but it improved to 1.14 percent after that.

After the bank’s Q1 results, SBI chairman Dinesh Khara stated that non-salaried borrowers account for about half of the bank’s home loan book. “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.

Collection trends are expected to improve in the coming days, according to analysts. Banks expect some NPAs from the bloated special mention account (SMA) pool to spill over into Q2, according to Emkay Global Financial Services, while the restructured pool should also inch higher. “Collection activity may revert to pre-Covid levels in Q3 if the Covid third wave is not severe. “Recovery rates in secured mortgages and gold loans should increase in retail because stress generation in those segments was higher than predicted due to reduced mobility, which has now normalized,” Emkay said.

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