Bad loans: 5 things Rs 1.14 lakh crore can do to get India shining

India’s 29 state-owned banks have written off a total of Rs 1.14 lakh crore between 2012-13 and 2014-15, a sum large enough to build more than 10,000 km of highways.

The Indian Express reported on Monday that “twenty-nine state-owned banks wrote off a total of Rs 1.14 lakh crore of bad debts between financial years 2013 and 2015, much more than they had done in the preceding nine years.”

Here are five things such an amount can do to push India up on the development ladder:

1. Build more than 11,000 km of national expressways at an average cost of Rs 10 crore per km, entirely funded by the government.

2. The current NREGA annual budget is Rs 34,699 crore. With Rs 1.14 lakh crore, the government can widen the scope of the rural job scheme by nearly four times. Conversely, with such an amount, the government will be able to fully fund the NREGA scheme for nearly four years without setting aside money in the annual budget.

3. The written off debt amount of Rs 1.14 lakh crore, if made available to the government, will allow it to nearly fully fund the annual food subsidy bill of Rs 1.25 lakh crore.

4. India currently spends about Rs 14,000 crore to build rural roads. The written off bank debts is more than eight times the annual budget of the Pradhan Mantri Gram Sadak Yojana. With Rs 1.14 lakh crore, the government can expand the scope of the rural road scheme eight times.

5. India spends Rs 22,000 crore from the annual central budget to finance the Sarva Shiksha Abhiyan, a state-funded elementary and primary education programme. With Rs 1.14 lakh crore, the total amount written off as bad debts between 2013 and 2015, the government will be able to expand the scheme five fold.

Rs 1.14 lakh crore of bad debts: The great government bank write-off.

That is the amount of bad loans waived in last three financial years, more than the write-off in the previous nine.

Twenty-nine state-owned banks wrote off a total of Rs 1.14 lakh crore of bad debts between financial years 2013 and 2015, much more than they had done in the preceding nine years.In response to an RTI application filed by The Indian Express, the RBI disclosed that while bad debts stood at Rs 15,551 crore for the financial year ending March 2012, they had shot up by over three times to Rs 52,542 crore by the end of March 2015.Asked about the details of the biggest defaulters, whether individuals or business entities, whose bad debts to the tune of Rs 100 crore or more had been written off, the RBI said: “The required information is not available with us.” Banks are required to report the bad debts on a consolidated basis, it said.

Even as the government has been trying to shore up public sector banks through equity capital and other measures, bad loans written off by them between 2004 and 2015 amount to more than Rs 2.11 lakh crore. More than half such loans (Rs 1,14,182 crore) have been waived off between 2013 and 2015. Only two banks, State Bank of Saurashtra and State Bank of Indore, have shown zero bad debts in the past five years. In other words, while bad loans of public-sector banks grew at a rate of 4 per cent between 2004 and 2012, in financial years 2013 to 2015, they rose at almost 60 per cent. The bad debts written off in financial year ending March 2015 make up 85 per cent of such loans since 2013.


The RTI reply also disclosed that bad debts have declined only four times since 2004. The last time was in 2011. An analysis of the information available with the RBI till 2012-13 also shows that between 2009 and 2013, both the advances by public sector banks to individuals and business entities as well as their amount of bad debts written off doubled. From 0.33 per cent of total advances in 2009, bad debts rose to 0.61 per cent in 2013. Bank-wise break-up shows State Bank of India, India’s largest bank, is way ahead of others in declaring loans as unrecoverable, with its bad debts shooting up almost four times since 2013 — from Rs 5,594 crore in 2013 to Rs 21,313 crore in 2015. In fact, SBI’s bad debts made up 40 per cent of the total amount written off by all other banks in 2015 and were more than what 20 other banks wrote off. In 2014 too, the bank’s bad debts alone comprised 38 per cent of the total of all banks. The figure of bad loans for 2014 and ‘15 combined, Rs 34,490 crore, was Rs 10,000 crore more than that for between 2004 and 2013, Rs 23,992 crore. The country’s second-largest public sector bank, Punjab National Bank, has also witnessed a consistent rise in bad debts since 2013. These grew by 95 per cent between 2013 and 2014 but climbed by 238 per cent between 2014 and 2015 — from Rs 1,947 crore in 2014 to Rs 6,587 crore in 2015. Reserve Bank Governor Raghuram Rajan has repeatedly expressed concern over the health of public-sector banks, and pushed for steps to ensure that banks classify certain stressed assets as non-performing assets (NPAs) and make adequate provisions to “strengthen their balance sheets”, besides working out schemes of merger. With public sector banks sitting on over Rs 7 lakh crore stressed assets, including NPAs and restructured loans, Rajan recently said the estimates of NPAs being 17-18 per cent are bit on the high side and that entities should be careful not to treat NPAs as total write-offs but see if they can change promoters and repay as the economy recovers. He also said that some banks would have to merge to optimise their use of resources. Gross NPAs of public-sector banks rose to 6.03 per cent as of June 2015, from 5.20 per cent in March 2015. RBI has asked banks to review certain loan accounts and their classification over the two quarters ending December 31, 2015, and March 31, 2016.


Editors Note:

In response to the above story, published in The Indian Express on February 8, 2015, the Union ministry of finance, the Reserve Bank of India and the country’s largest bank, State Bank of India, have written back stating that the write-offs are an accounting entry to meet regulatory guidelines.

Ministry of Finance:

The fact of the matter is that write-offs are basically technical and are done within the framework of Income Tax Act, 1961 and RBI Guidelines regarding provisions for bad loans as per Standard Accounting Practices. Banks write-off advances at Head Office level as part of the balance sheet cleaning exercise and these loans continue to remain outstanding in the branch books. Recovery efforts continue to be made in the respective branches with respect to these bad loans. Write-off does not mean that recovery comes to a stop.

Reserve Bank of India:

‘Writing off’ of non-performing assets is a regular exercise conducted by banks to clean up their balance sheets. Substantial portion of this write-off is, however, technical in nature. It is primarily intended at cleansing the balance sheet and achieving taxation efficiency. In ‘Technically Written Off’ accounts, loans are written off from the books at the Head Office, without foregoing the right to recovery. Further, write offs are generally carried out against accumulated provisions made for such loans. Once recovered, the provisions made for those loans flow back into the profit and loss account of banks. The data published in the above news item is the total write-off made by banks, which includes a large portion of technically written off accounts where the recovery efforts continue as usual.

State Bank of India:

We would like to point that SBI has a loan book of Rs 13,70,701 crore and the net NPAs are Rs 28,592 crore as on September 2015, which represent 2.14% of the advances. Standalone figures may appear big, however if you look at the overall size of SBI and its net NPAs, it can be seen that we are amongst the most efficient public sector banks in India. Moreover, our NPA figures have been improving over the last few years. It is pertinent to mention that SBI is 2.8 times larger than the next largest bank in the country in terms of business. Writing off a bad debt is an accounting entry to meet the regulatory guidelines. Writing off an amount does not mean it is a total loss as our legal team continues the recovery process and in due course recoveries are effected in the written off accounts, which are then added to the profits of the bank for that year. During the year ended March 2015, our bank recovered Rs 2,300 crores from the written-off accounts. We would herein like to add that for recovery, our legal systems and processes are most robust and reliable in the entire banking system.

Our Correspondent replies:

The report is based on a response from the Reserve Bank of India to an RTI application filed after the December 16, 2015, Supreme Court judgment, which said the banking regulator was bound in law to give information regarding private and public banks under the Right To Information Act. “RBI is supposed to uphold public interest and not the interest of individual banks. We have surmised that many financial institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny,” said a bench of Justices M Y Eqbal and C Nagappan. The RBI has noted that the total write-offs includes a large portion of technically written-off accounts where the recovery efforts continue as usual. Therein lies the problem. After a technical write-off, there is no incentive for banks to pursue recovery, as noted by RBI’s former deputy governor KC Chakrabarty in the past. Given the humongous bad loan problem at hand, the write-offs cannot be seen as just housekeeping. The Rs 1,14,000 crore written off over just the last three years (2012-13 to 2014-15) is more than the write-off over the previous nine years. So acute is the problem that both the Union finance ministry and NITI Aayog have separately pitched for setting up a government-owned asset reconstruction company to take over banks’ bad assets. Most importantly, write-offs force the government to commit large dollops of capital so that banks continue to undertake normal lending operations in the coming years. The finance ministry has proposed to infuse Rs 70,000 crore over the next four years, which may not be enough. Capital infusion by the government is always at the taxpayers’ expense. Setting aside moneys from the Budget for this only precludes higher allocation for critical sectors such as health and education.

Indian Foreclosures / Bank Auctions activity is transparent and emerging – Canara Bank’s new Trend in resolving NPA’s with Mega e auctions was established in 2009 and it is a market place for Foreclosure / Bank Auction listings in India and also providing e-Auction services to 18 Banks, i.e. Central Bank of India, UBI, OBC, Lakshmi Vilas Bank, State Bank of Hyderabad, IDBI Bank, Corporation Bank, IOB, Karnataka Bank, ING Vysya Bank, CUB, Religare ARC, IARC etc. for selling non-performing assets though BankAuctions.IN.


HYDERABAD, IndiaNov. 11, was established in 2009 and it is a market place for Foreclosure / Bank Auction listings in India and also providing e-Auction services to 18 Banks, i.e. Central Bank of India, Union Bank of India, Oriental Bank of commerce, Lakshmi Vilas Bank, State Bank of Hyderabad, IDBI Bank, Corporation Bank, Indian Overseas Bank, Karnataka Bank, ING Vysya Bank, City Union Bank, Religare ARC, International ARC, etc. for selling non-performing assets though BankAuctions.IN. Indian Foreclosures / Bank Auctions Market is transparent and emerging. is a market place for BankAuction properties in India since Nov 2009. It is the first of its kind internet portal that helps the buyers of property in getting the free access to all Auction property details / free foreclosure listings information of banks and financial institutions happening in and around 34 major cities of the country. It also gives people a cheaper alternative to the conventional properties from builders and individuals.

Gross non-performing assets of banks in India as on March 2015 stood at 5.17 per cent, while the stressed assets ratio stood at 13.2 per cent, which is nearly 230 bps more than that for the system. Going through the details of annual financial results of public and private sector banks (including old private banks) for 2014-15, it may be noted that the gross non-performing assets (GNPA) of 26 public sector banks (including 19 nationalised banks, State Bank of India and its associates and IDBI) have risen by 22.5 per cent to Rs.2.78 lakh crore against Rs.2.27 lakh crore in the previous financial year.

According to Ministry of Finance, Government of India directives issued during March 2013, all auctions of immovable properties, under SARFAESI Act, 2002, may be carried out through E-Auctions to ensure a free, fair and transparent process. All DRT’s are conducting E-Auctions to sell NPAs.

E-auctions of non-performing assets under SAFAESI act 2002 were started by 27 Banks & Financial Institutions in Nov 2013 with 1301 live properties.

In a span of two years, another 47 Banks started conducting e-auctions of non-performing assets and the number of live e-auctions increased to 3325 in Nov 2015 from 1301 during Nov 2013.

Banks and Financial Institutions are conducting these time based e-auctions through third party e-auction service providers. There are seven e-Auction service providers available in India. “E-publicity” / Digital publicity for foreclosure properties / Bank Auction properties is being done for selling properties.

Recently, as a special drive, some of the Banks like State Bank of India, State Bank of Hyderabad and its associates have conducted Mega E-auctions duly making wide publicity. Mega e-auction means all the regional offices and zonal offices etc of that Bank are issuing e-auction notices at a time and conducting the e-auction on one particular day duly following rules.

Similarly, now Canara Bank, is conducting Mega e-auction for selling of 1178 properties across India. All these properties details are available at

Canara Bank
Mega E-Auction
City wise No of NPA’s being Auctioned on 21.11.2015
City No of NPA’s City No of NPA’s
Patna 39 Mumbai 12
Pune 25 Mysuru 16
Ahmedabad 10 Nashik 4
Bangalore 53 New Delhi 195
Bhubaneswar 25 Ranchi 16
Chandigarh 25 Shimla 14
Chennai 122 Shillong 28
Coimbatore 72 Surat 30
Goa 12 Thiruvananthapuram 3
Hyderabad 74 Visakhapatnam 4
Indore 20 Vijayawada 39
Jaipur 8 Bhopal 13
Kochi 73 Nagpur 7
Kolkata 1 Raipur 34
Lucknow 100
Ludhiana 25
Madurai 24
Mangalore 55’s data


1.PRICE ADVANTAGE: At least 25% cheaper than market price.
2.LEGALLY SAFE: Since Banks / Financial Institutions have given loan after verification of all the legal aspects only, these are 95% legally safe.
3.CREDIBILITY OF SELLER: You are buying from a Bank / Financial institution, which is authorized by Govt. of India to sell such properties.
4.FIXED TIME FRAME: Entire transaction will be over in less than two months period.
5.TRANSPARENCY: 100 % transparent transaction. Any one can participate in e – auctions from anywhere in the world.
6.PROBABILITY: 90% chances of winning in the Bank Auction.
Buying properties in Bank Auctions is an intelligent financial decision. The following are the seven steps required to buy properties in Bank Auctions ( / Foreclosures (
i. Read The Auction Notice Carefully,
ii. Verify Documents,
iii. Inspect property,
iv. Make Finances ready,
v. Submit tender,
vi. Participate in Auction,
vii. Get Sale certificate.
1. Read The Auction Notice / Sale Notice Carefully:
Advised to take a printout of Auction notice and read the details mentioned in the advertisement carefully and note down the important aspects like contact details, inspection date, reserve price, earnest money deposit ( EMD), cost of auction forms, tender submission time & date, auction date & time and finally e-auction website details.
2. Documents Verification: Enquire with the bank / financial institution about further information of the property. Visit the Bank and see all the documents such as registration documents of the present borrower, link documents, latest encumbrance certificate pertains to the property, approved layout for plot by the competent authority, approved plan for flats / houses by competent authority etc. If required, consult with a solicitor / advocate before the auction. Once this aspect is clear, you can proceed further.
3. Inspection of the Property: Visit the site of the property as per inspection schedule given in Sale notice. Consult people around the property to know the price prevailing in that area. While inspecting the property observe the present physical condition of the property, enquire about the pending property taxes, electricity dues, welfare associations maintenance dues. The property comes as is, as such any pending dues should be added to your consideration price before quoting.
4. Get your Finances Right: Please make sure that you are prepared for the price to be paid for the property. If you have ready cash, you can clinch the deal faster and possess the property fast. If you are thinking of availing a Bank Loan, you may approach some bank for sanction of pre-approval loan to complete the transaction in the specified time frame very smoothly.
5. Submission of Tender: Submit the bid at the specified branch before the due date and time, along with demand draft / Banker cheque as EMD ( earnest money deposit ), copies of purchasers PAN card, photo identity card and residence proof. In most of the cases the EMD amount is 10% of the reserve price.
6. Participating in Auction: Based on the data & statistics of the foreclosure properties / bank auction properties in India, around 60% of the Bank auction properties are unsold, due to various reasons. Around 30% properties are getting one bid only. Around 10% properties are getting two or more bids. In case of E-Auction, please take training from the E-Auction service provider at free of cost, the details of e-auction service provider are available in E-auction notice. Investor will be successful if he/ she is the highest bidder. Investor needs to pay another 15% on the same day of the auction.

7. Sale Certificate & Registration: After payment of the total amount either from own sources or through Bank loan, a sale confirmation certificate will be issued. Investor have to pay the stamp duty and get the property registered in their name. The authorized officer will register the property on behalf of the Bank. After completion of registration, the physical possession of the property will be handed over to the Investor.
All the real estate Investors / NRI investors are invited to utilize this opportunity to buy good properties at much discounted rate.
Bhargav, Managing Partner of says, “During the last 6 years we have created awareness about Bank Auctions and Transparency by disseminating the information of Bank Auctions.During the next couple of years, we will provide Excellent Experience to sellers & Buyers in Foreclosures market / Bank Auctions market.”

Quick loan recovery hope for NBFCs

Calcutta, March 8: Non-bank finance companies (NBFCs) have welcomed the Centre’s decision to allow access to the Sarfaesi Act, which facilitates the recovery of non-performing assets without court intervention.

Sarfaesi, or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, enables banks to expedite recovery and improve credit behaviour.

The NBFCs registered with the RBI and having an asset size of Rs 500 crore and above (considered as systemically important) will be eligible to access the provisions of the act.

According to industry players, the move will create a level-playing field with banks. It will not only help to improve the pace of recovery of bad assets but also keep a check on non-performing asset (NPA) levels.

CARE ratings has estimated the gross NPA level of the NBFCs to be in the range of 5.8-6.1 per cent of advances by 2018 from around 3.4 per cent in 2014.

The government’s decision comes after the RBI last year announced tougher provisioning and liquidity norms for the NBFCs to bring them on a par with banks.

The RBI, however, did not allow the NBFCs access to the Sarfaesi Act in its revised framework.

The NBFCs as well as industry associations had, therefore, asked the finance ministry to consider their demand for access to the act.

“Allowing NBFCs access to the Sarfaesi Act is a big plus for players like us. All this while, NBFCs lacked a level-playing field vis-à-vis banks,” said Hemant Kanoria, chairman and managing director of Seri Infrastructure Finance.

He said the asset quality of the sector had been under stress over the last few years because of a weak operating environment and recovery remained a challenge.

The NBFCs so far had to depend on civil courts where litigation went on for years.

Under the Sarfaesi Act, the total time taken to recover the loan will come down to a few weeks or months, depending on the cases, he said.

Laxmi Narsimham, chief financial officer of Magma Fincorp, said the decision would benefit NBFCs engaged in immovable properties such as mortgage, infrastructure finance and small and medium enterprises more than those that finance movable assets such as commercial vehicles and construction equipment.

“The recovery time will certainly come down to a great extent,” he said.

Checklist for action under SARFAESI Act

Sri C P S Rama Chary garu, Practiced law in City Civil Courts, Industrial Tribunal & High Court of AP for about 9 1/2 years.  Served in Law Department of Andhra Bank for about 23 years. Retired Presiding Officer ( DRT3 at Chennai ).

1 Sarfaesi Act  poroceeds on the basis that borrower created security interest in favour of bank and his liability stood crystalised on account of his default and his account is classified as NPA Sec.13(2): Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under subsection(4)
1 Initiation of action begins on service of demand notice The opinion Supreme Courtin Mardia Chemicals Ltd. &Anr. Vs. Union of India &Ors.:AIR 2004 (4) SCC 311)that the demand notice is show cause is clarified by Supreme Court in (Transcore Vs. Union of India &Anr. AIR 2007 SC 712) as initiation of action
2 How to calculate the quantum of claim amount in the demand notice Please ensure that, the balance outstanding in the bank’s book and the un-debited portion of interest accrued but not reflected in the bank’s book (on account of status of the loan account as NPA) are added and incorporated in the demand notice. The Authorised Officer (for short “A.O.”) need not approach any Court or Tribunal for determination of the quantum of amount of claim. 
3 Demand notice and its contents: i). Please ensure that the demand notice covers all the details of the facilities granted to the borrower(s), dues and securities and measures to be taken in the event of default as stated in the guide and all the borrowers are addressed correctly as per the records.ii). The Act or the Rules have not prescribed any format of demand notice.
4 Whether action under RDDB & Fi Act 1993 or a suit/ claim already filed in civil court/drt/transferred from civil court, saves limitation for initiating action under SARFAESI Act Action under RDDB & FI Act 1993 or a suit/claim already filed in civil court/DRT/transferred from civil court, does not save limitation for taking action under SARFAESI Act.
9 Whether action initiated under SARFAESI Act 2002 saves limitation for filing claim for recovery of the unrealised portion of debt. No.
10 How many demand notices a secured creditor can issue There is no bar. Any number of notices can be issued provided the security interest sought to be enforced is not barred by limitation. 
11 Res Judicata No application. Action under the Act can be taken any number of times if the secured debt or security interest is not barred by limitation.
12 Service of demand notice: Please note changes in the addresses of the borrowers if any before addressing the demand notice. Change of address of borrower(s) must be obtained in writing. Oral information is not reliable as it is construed as not born out of record. Servedemand notice as contemplated in Rule 3 of Security Interest (enforcement) Rules 2002. 3(1) The service of demand notice shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower (or his agent empowered to accept the service) or by Speed Post or by courier or by any other means of transmission of documents like fax message or electronic mail service. 
ii). Procedure where borrower avoids service of demand notice or for any reason notice could not be served. Proviso to Rule 3(1):Where authorised officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality.Evidence of this exercise is to be reduced to writing (record panchanama).

Preserve full page of the relevant Newspapers as the same are required in evidence.

  iii) Service of notice to wife of borrower is sufficient service If borrower’s marital relationship is not judicially separated or dissolved by order of competent court
  iv). If borrower is abody corporate Rule 3(2): Where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1).
v). The manner of service of any notice Rule 3(3) of S.I.(E) Rules Rule 3(3): Any other notice [i.e. Possession notice under 13(4) of SARFAESI Act or Rule 8(6) of S.I.(E) Rules] in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in Rule 3.
  See Sec.2 (2) of SARFAESI Act. According to Section 2(1)(f) of SARFAESI Act “borrower” means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted byany bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance  


According to Sec.2(2) of the Act the Words and expressions used and not defined in this Act but defined in the Indian Contract Act, 1872 (9 of 1872) or the Transfer of Property Act, 1882 (4 of 1882) or the Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall have the same meanings respectively assigned to them in those Acts.

3 Inspection of secured assets It is advisable to inspect the secured asset(s) and find out its/their status / situation.
4 Computation of 60 days The date of service of the demand notice or publication of the demand notice after affixing it (as stated in the proviso to Rule 3(1) of S.I.(E) Rules) and the 60th day to be expired are to be excluded for computing the 60 days. 


5 Representation/Objection: against the demand notice Sec13 (3A). 

Communication of reply is mandatory in both the events.

After service of the notice if the borrower makes any representation or objection against the demand notice the A.O. should immediately send it to the secured creditor who in turn should send a reply or advise the A.O. to communicate reply to the borrower within “fifteen days” (recent amendment substituted for one week) of receipt of such representation or objection by registered post with AD or Courier. Evidence of communication is to be preserved for evidence. 

Representation: seeking for extension of time for payment or OTS.

Objection: Challenging the validity of the demand notice on various grounds.

6 PROCEDURE FOR TAKING POSSESSION OF MOVABLE SECURED ASSETS Taking symbolic possession of movable secured assets is not permissible in law. Procedure for taking possession of movable secured assets is different from the procedure relating to the immovable secured assets.
  i). In case the secured assets are movable, the A.O. has to take possession of them in the presence of two witnesses and draw a  panchanama, as nearly as possible as given in Appendix-I [ See Rule 4(2) of S.I.(E) Rules](Evidence to be preserved).
INVENTORY REPORT ii). After taking possession of the movable secured assets, the A.O. has to record ‘Inventory Report’ as per Appendix–II [See Rule 4(1) of S.I.(E) Rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the A.O. has to mention the name of the person appointed by him in whose custody the secured assets are preserved.
  PRESERVATION To take care to preserve movable secured assets which owner of ordinary prudence would take. In case of factories or stores the secured creditor has to entrust the same for custody of an authorised person or approved re-possessors / security persons.
  INSURANCE COVER A.O. has to take insurance cover if necessary until sale is completed. Comprehensive policy with a clause to pay the sum assured to the company which would discharge the insurance company against adverse claim of borrower if any.
7 CIRCUMSTANCES FOR IMMEDIATE SALE There are two circumstances for immediate sale of movable secured assets.1.   If movable secured assets are subject to speedy or natural decay

2.   or the expense of keeping such property in custody is likely to exceed its value, the authorised officer may sell them at once.


(Issue sale notice but need not wait for expiry of 30 days of the sale notice).


AO has to record reasons if necessary by drawing a panchanama in this regard.


8  PLANT AND MACHINERY ATTACHED TO EARTH Plant and machinery should be treated as part of the immovable secured asset if they are fastened to the earth with cement and concrete as on the date of taking possession. In the possession notice (Appendix-IV) the same must be mentioned specifically giving brief description of the particulars of the machinery vide separate annexure attached to it.
PLANT AND MACHINERY IF DETACHED FROM EARTH If Plant and machinery are detachable from earth as on the date of taking possession then A.O. has to record ‘Inventory Report’ as per Appendix–II [See Rule 4(1) of S.I.(E) Rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the A.O. has to mention the name of the person appointed by him in whose custody the secured assets are preserved.
  VALUATION OF MOVABLE SECURED ASSETS After taking possession under sub-rule (1) of rule 4 and in any case before sale, the authorised officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to he sold in realisation of the dues of the secured creditor.
8 REQUIREMENTS TO MOVE CMM/DMFOR ASSISTANCE 1.   Application making a request to render assistance.2.   List with copies of documents.

3.   Affidavit disclosing all the particulars.

9 PROCEDURE IN CASE OF IMMOVABLE SECURED ASSETS Take possession of immovable secured asses (whether symbolic or physical), serve possession notice (Appendix-IV) under Sec.13(4) read with Rule 8(1) and(2), obtain acknowledgment of service, affix it to secured asset and publish it in two leading newspapers(one in vernacular) having sufficient circulation in the locality. 
    If borrower refuses to acknowledge service of the possession notice, then the AO may send it by registered post /courier and preserve evidence and the same may be recorded at the foot of the possession notice and obtain signature of two witnesses.




Rule 8(5) of S.I.(E) Rules contemplates valuation of immovable secured assets by approved valuer before effecting sale.
11 APPROVED VALUER: 1.Registered under Sec.34AB    of Wealth Tax Act 1957

2.Approved by the Board of the


12 RESERVE PRICE Valuation minus 15% or 20%See Swastic Agency Vs. State Bank of India


13 SALE NOTICE-PERSONAL Rule 8(6) The Authorised Officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5) 
14 SERVICE OF SALE NOTICE Sale notice must be served in the same manner as the demand notice and possession notice are served in the same manner as contemplated in the sub rule(1) of Rule 3 of S.I.(E) Rules 2002. See Rule 3(3) demanding the borrowers to pay the debt as demanded in the demand notice and possession notice together with interest
15 PUBLICATION OF SALE NOTICE If the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, –(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor

(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;

(b) the secured debt for recovery of which the property is to be sold;

(c) reserve price, below which the property may not be sold;

(d) time and place of public auction or the time after which sale by any other mode shall be completed;

(e) depositing earnest money as may be stipulated by the secured creditor;

(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value

of the property.

16 AFFIXTURE OF SALE NOTICE Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the website of the secured creditor on the Internet. 
17 SALE  BY OTHER METHODS Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
18 SALE CANNOT BE EFFECTED BEFORE EXPIRY OF THIRTY DAYS No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. 
19 IDENTIFICATION OF SUCCESSFUL BIDDER A bidder who has offered highest prize shall be identified as successful bidder and he has to deposit 25% of the bid amount immediately
20 CONFIRMATION OF SALE BY SECURED CREDITOR The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor
21 SALE BELOW RESERVE PRIZE No sale shall be confirmed, if the amount offered is less than the reserve price
22 PAYMENT BY BIDDER IN WHOSE FAVOUR THE BID IS CONFIRMED The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.
23 BIDDER’S NOMINEE Bidder cannot appoint nominee for obtaining sale certificate
24 FORFEITURE AND RESALE OF SECURED ASSET In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.
25 CONSENT OF BORROWER If the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. 
26 PARTIPATION OF THE BORROWER IN THE PROCESS OF SALE AS TENDERER/BIDDER Borrower can participate as tenderer / bidder to purchase the secured asset in the process of sale
  PARTIPATION OF THE BORROWER IN THE PROCESS OF SALE AS SPECTATOR OR WITNESS Borrower cannot participate as spectator or witness in the process of sale
27 SALE CRTIFICATE On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules.(Note: The sale is caused under the Act in “as it is what it is and where it is basis. Hence the S.I.(E) Rules devised the sale certificate. Sale Certificate does not contain any indemnity clause as in case of sale deed and the rule “sans recourse” is not applicable to the sale i.e. the secured creditor is not answerable for any defects in the title to the secured asset sold). The sale certificate shall be the prima facie evidence of title of the purchaser
28 ENCUMBERANCES The purchaser has to deposit the encumbrances if any in respect of the secured asset sold. Where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him.
29 NOTICE TO PERSONS INTERESTED IN THE AMOUNT OF (CROWN DEBTS) ENCUMBRANCES On such deposit of money for discharge of the encumbrances, the authorised officer shall issue notices to the persons interested in or entitled to the money deposited with him and take steps to make, the payment accordingly
30 NON PRIORITY DUES The following are not crown debts:1.Electricity dues

2.Custom & Excise Duty

3.Income Tax dues prior to creation of mortgage


31 PAMENT OF SURPLUS TO THE PURCHASER Provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from date of finalisation of the sale.

Amendment in SARFAESI Act on NPA constitutionally valid: Supreme Court

PTI Jan 28, 2015, 09.49PM IST

NEW DELHI: Supreme Court today upheld the constitutional validity of an amendment in the provision of the securitisation law which authorises the creditor to classify the account of a borrower as Non Performing Assets (NPA) in accordance with RBI guidelines and directions.

The apex court passed the judgement while dealing with the amended definition of the expression ‘NPA’ under Section 2(1)(o) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

A bench of justices J Chelameswar and S A Bobde disposed of a bunch of petitions while directing the borrowers to pay costs to the respective creditors at one per cent of the amount outstanding on the date of the notice.

While upholding the validity of the amendment brought out in 2004, the bench said “the submission that the amendment of the definition of the expression ‘non-performing asset’ under Section 2(1)(o) is bad on account of excessive delegation of essential legislative function, in our view, is untenable and is required to be rejected”.

In its 52-page judgement, the apex court noted that to make any attempt to define the expression ‘non-performing asset’ valid for millions of cases of loan transactions of various categories, lent or made by different categories of creditors, would “not only be an impracticable task but could also simply paralyse the entire banking system”.

It would thereby produce results which would be counter- productive to the object and the purpose sought to be achieved by the Act, the court said.

“Realising the same, Parliament left it to the Reserve Bank of India and other Regulators to prescribe guidelines from time to time in this regard. The RBI is the expert body to which the responsibility of monitoring the economic system of the country is entrusted under various enactments like the RBI Act, 1934, the Banking Regulation Act, 1949.

Various banks like State Bank of India, National Housing Bank, which though are bodies created under different laws of Parliament enjoying a large amount of autonomy, were still subject to the overall control of the RBI,” the bench said.

SC upholds changes in Sarfaesi Act; banks free to decide NPAs

By: | New Delhi | January 29, 2015 5:00 am

SC-Upheld the amendment to Sarfaesi Act

Dismissing appeals filed by around 60 companies, the Supreme Court on Wednesday upheld the amendment to the Securitisation Act that gave power to every financial institution to decide a period after which a bad loan can be declared as a non-performing asset (NPA).

Before the 2004 amendment to the Securitisation Act and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (Sarfaesi Act), RBI was the regulator for the banking, non-banking and securitisation institutions for deciding the period after which loans could be treated as NPA. Till 2004, RBI had set the NPA period for banks at 90 days and at 180 days for NBFCs.

Power Finance Corporation has a six-month period to classify an asset as an NPA. Besides, there are a few other institutions like Exim Bank, National Housing Bank under NHB Act, Nabard, Rural Electrification Corporation and Indian Railway Finance Corporation who are governed by their own regulations.

The promoters of around 60 companies had moved the Supreme Court questioning every financial institutions power to decide its own NPA period, saying it is a violation of right to equality. They had also challenged the RBI’s competence to regulate all banking and NBFCs in this regard. A bench headed by Justice J Chelameswar, while dismissing the appeals, asked the distressed companies to pay 1% of their loan outstanding amount to the lenders as costs.

The ruling came on two batches of petitions against the high courts of Gujarat and Madras as both the courts have differed on the issue. The Gujarat High Court while striking down the powers of different regulators in defining NPAs (under Section 2(1)(o)(a) of the Securitisation Act, 2002) had restored the power of the RBI to decide the period after which the bad loan can be called as an NPA.

However, the Madras High Court while rejecting petitions of various companies and individuals, including Deccan Chronicle Holdings and Marg, had upheld the constitutionality of Section 2(1)(o) of the Act and the guidelines issued by the RBI on the classification of assets as NPAs. Interestingly, Delhi High Court had upheld this 2004 amendment in the

Challenging the Gujarat HC’s April order that termed the decision of Parliament to take away the power from RBI as wrong, the promoters and companies had alleged that its prudential norms defy the right to equality under Article 14 of the Constitution of India.

Questioning the reason for the difference of NPA periods among financial firms, they argued that the 2002 Act should be applied uniformly across all borrowers and challenged the RBI guidelines on income recognition, provisioning and asset classification under prudential norms as being unconstitutional.

“The RBI guidelines are discriminatory, arbitrary, unreasonable and ultra vires the Securitisation Act and that the definition of the NPA as per RBI is contrary, distinct and contradictory to the definition of the NPA under the Central Act, and hence, the same is unconstitutional,” senior counsel Soli Sorabjee had argued.

Debtors of various banks who have appealed against the Madras HC’s order said that issuing guidelines relating to asset classification is essential legislative function and, therefore, it cannot be delegated. They argued that the guidelines issued by the RBI cannot be used for defining NPAs and there should be a separate legislation in this regard.

Sarfaesi Act gives powers to seize and desist to the banks under which the banks need to send a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. In case the borrower fails to comply with the notice, the bank can take either take possession of the security for the loan, sell or lease or assign the right over the security or appoint any person to manage the same.

Government Press Release » Government Press Release » News PM’s remarks at Gyan Sangam – the Bankers’ Retreat in Pune


The Prime Minister, Shri Narendra Modi, today called upon India’s banking sector to establish banks which rank among the top banks of the world.

He was speaking at Gyan Sangam – the Bankers’ Retreat in Pune. He said it was perhaps the first time that banks had given tasks to the Prime Minister through a presentation. He said the Gyan Sangam reflected team spirit and a collective will to address issues. He described Gyan Sangam as a unique initiative.

He said the objective in this bankers’ retreat was to find solutions to problems, and this was the first step towards catalyzing transformation. He said informal discussions helped achieve meeting of minds, which in turn enabled strategic goal setting.

The Prime Minister appreciated the efforts of the banks in successfully implementing Pradhan Mantri Jan Dhan Yojana. He said this is going to have multiple effects. He said the Jan Dhan Yojana would help redefine goal setting among banks, due to enhanced confidence levels following the success of the programme.

The Prime Minister said 7 crore families had benefited from direct cash transfers of LPG subsidy in just three days since January 1st. He said this represented one-third of all families India. He said such achievements should boost confidence.

The Prime Minister said the banking sector of a country mirrors its economic rise. Japan and China had banks in the top ten banks of the world during their economic rise.

The Prime Minister said banks would be run professionally, and there would be no interference. But accountability was essential. He said the Government had no vested interest, and public sector banks can derive strength from this fact.

However, the Prime Minister said India is a democracy. He said he is against political interference, but supports political intervention, in the interest of the people. He said political intervention will enable the voice of the common man to reach such institutions.

The Prime Minister said this also highlighted the issue of poor financial literacy in the country. He said today even the common man needed financial literacy. He called upon banks to take the lead in encouraging competitions on financial literacy in schools, much like mock Parliament competitions.

The Prime Minister said banks should develop dedicated teams to fight cyber crime.

The Prime Minister said that with 81% of branches and 77% of deposits, the net profits should improve from current levels of 45%.

The Prime Minister called for developing common strengths among the 27 public sector banks. He suggested this could be done in areas such as software, and advertising. He gave the example of number portability in the telecom sector in this regard. He said this would improve the customer-centric focus of banks. The Prime Minister said public sector banks, as a team, should also be conscious of the direction in which the country is moving, and work towards simplifying procedures to facilitate the common man.

The Prime Minister also called upon banks to trust the common man.

The Prime Minister said the Swachhta Abhiyan has caught the imagination of the younger generation. He called upon each public sector bank to help develop 20,000 to 25,000 Swachhta entrepreneurs. He also asked banks to prioritize loans to students as this would be a very productive investment for the country. He said the country needs skill development for its youth in a big way, and banks need to take the lead in this.

The Prime Minister asked public sector banks to set goals for the 75th anniversary of independence in the country in 2022. He said he had resolved to provide housing for all by 2022, and banks had a huge opportunity here, as 11 crore houses were required.

The Prime Minister said banks should redefine parameters for success. For instance, let them prioritize loans to enterprises which will generate more employment, he said.

The Prime Minister called for an end to lazy banking, and asked banks to take on a proactive role in helping the common man.

The Prime Minister said that as part of Corporate Social Responsibility, banks should take up one sector each year to play a positive role.

Governor of Maharashtra Shri Vidyasagar Rao, Chief Minister of Maharashtra Shri Devendra Fadnavis, Finance Minister Shri Arun Jaitley, MoS Finance Shri Jayant Sinha, RBI Governor Shri Raghuram Rajan, and Secretary Financial Services Shri Hasmukh Adhia were present on the occasion.

Decrypting The Wilful Defaulter Tag

Decrypting The Wilful Defaulter Tag

United Bank of India (UBI) declared Kingfisher Airlines, Mallya himself and three directors of the company – Subhash R Gupte, Ravi Nedungadi and Anil Kumar Ganguly – as wilful defaulters.

Kingfisher Airlines in July 2014 moved the Calcutta High Court, two months after the bank had in May 2014 identified it and Mallya as wilful defaulters. The court last week dismissed the plea, paving the way for UBI to declare the company and its chairman wilful defaulters.

Last Tuesday the Supreme Court on rejected a plea by Kingfisher Airlines against being declared a wilful defaulter, saying it has become infructuous as the Grievance Redressal Committee of Union Bank of India has already passed an order.

Wilful defaulter

A borrower is classified as a wilful defaulter in any of the following events:

  • When there is a default in repayment obligations by the unit (company/individual) to the lender even when it has the capacity to honour the said obligations. There is deliberate intention of not repaying the loan.
  • When the funds have been siphoned off and not been utilized for the purpose for which it was availed. Further, no assets are available which justify the usage of funds.
  • When the asset bought by the lenders funds has been sold off without the knowledge of the bank/lender.
  • The funds are not utilized for the specific purpose for which finance was availed but have been diverted for other purposes.
  • Further, in cases where a letter of comfort or guarantees furnished by group companies of wilfully defaulting units are not honoured when they are invoked by the lender, then such group companies are also considered to be wilful defaulters.

The decision to tag a borrower as a willful defaulter is the harshest step a bank can take upon any borrower.

Identifying and Declaring wilful defaulters

Bankers have an internal committee, headed by an executive director that examines cases of wilful defaults. The credit monitoring or recovery departments give their reports on borrowers deemed to have defaulted wilfully to this committee. The committee examines the efforts made by the bank to recover the dues, the repayment capacity of the borrower, end use of the funds before identifying an individual as wilful defaulter. The decision taken on classification of wilful defaulters is well documented and supported with evidence

Once a borrower is identified as a wilful defaulter, the bank sends him/her a notice with the reasons for the same. The borrower is generally given 15 days to make a representation against the decision to the grievance redressal committee. This committee is either headed by the chairman and managing director or by the executive director who is not part of the panel on identification of wilful defaulters. The bank declares a borrower wilful defaulter if he fails to offer a proper explanation or avoids the grievance redressal committee hearing repeatedly despite notices.

Banks also send their list of wilful defaulters to RBI, Securities and Exchange Board of India (Sebi) and Credit Information Bureau India (Cibil). This is aimed at preventing wilful defaulters from accessing capital markets and borrowing from other banks and financial institutions. The penal measures include the following:

  • No additional facilities will be granted to listed wilful defaulters by banks and financial institutions
  • Promoters of companies that have been identified for siphoning of funds, misrepresentation of accounts and fraudulent transactions will be debarred from institutional finance for floating new ventures for a period of five years
  • Legal process against wilful defaulters will be initiated. Lenders may initiate criminal proceedings also
  • Banks will adopt a proactive approach for a change of management of the willfully defaulting borrower unit.
  • Wilful defaulters will not be allowed to take up board positions in any company

Banks need not report cases

  • Where outstanding amount due is below Rs 25 lakh and
  • Where lenders/Banks have agreed for a compromise settlement and the borrower has fully paid the compromised amount.
ICRA: NPA’s of PSU banks to touch 4.6% in FY’15

ICRA: NPA’s of PSU banks to touch 4.6% in FY’15

ICRA an independent investment information and credit rating agency estimates that public sector bank’s gross non-performing assets (NPAs) to stand at up to 4.7 per cent at the end of this financial year, compared with 4.4 per cent at the end of FY14 it expects public sector banks’ gross NPAs to be at 4.4-4.7% as on March 31, 2015.

Fresh non-perfoming assets or NPAs of public sector banks are estimated to be at 3.5% of advances during the quarter ended June’14, according to a study by ratings firm Icra. Their gross NPAs increased by 20 basis points (bps) to 4.6% during the quarter. Asset quality of private sector banks too continued to remain under pressure as their NPAs also increased by 20 bps to 2.0% during the quarter.

However, there was a significant drop in the number of fresh cases of loans being refered to the corporate debt restructuring or CDR Cell for restructuring during the first of FY’15.

“The rate of generation of fresh NPAs remained elevated for public sector banks (3.5 per cent) and, as result, their gross NPAs increased by 20 basis points to 4.6 per cent in the first quarter of FY15. During the same quarter, the NPAs of private banks increased by 20 basis points to two per cent,”

– Icra.

The Icra study notes that the level of NPAs in the banking system gets understated as a sizeable amount of loans are sold to asset reconstruction companies or ARCs. It says that the gross NPA percentage would have been higher by 20-30 bps if there were no sales to ARCs . But sale of NPAs to ARCs is expected to decline in the rest of the current financial year ending March’15 as the Reserve Bank of India has prescribed that ARCs must invest and hold 15% in Security Receipts (SRs) as against 5% earlier.

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