Banks build on kinder home loan recovery process

Suresh Ranganath Chaudhary, a resident of Nashik, recently settled his home loan with ICICI Bank by surrendering his property. Early this month, having climbed four floors to collect the closure document, the 54-year-old Chaudhary dropped dead in the bank's recovery office.

The event has "� as such an event would "� triggered a debate over whether banks are being unduly harsh in their methods of recovering money from borrowers who default, like Chaudhary did. Memories of banks sending goons to recover credit card dues are still fresh.

In a period of rising interest rates, the issue has become critical. Several banks have as high as 3.5 per cent defaults in their housing loans portfolio against 1-1.5 per cent two years ago.

The percentage rise is deceptively small. Given that the disbursed amount has risen to Rs 87,000 crore from Rs 32,000 crore, the absolute amount in defaults soars into the stratosphere.

However, while Chaudhary met an unfortunate fate, it seems banks are showing far more patience in dealing with home loans, which are against sound collateral (the house), than they have been in recovering credit card dues, against which there is no collateral.

In fact, bankers are wary of precipitating matters and are known to modify the amount of EMI (equated monthly installment) and the repayment period to accommodate the constraints of the borrower.

Shashi Shinde (name changed), a middle management executive with a software firm, stopped paying the EMIs in the middle of last year on his 15-year, Rs 50 lakh loan. The rise in the interest rate by two percentage points was squeezing him.

The bank was not sympathetic initially, but later approached Shinde with a revised repayment schedule that reduced his EMI to the level of the first installment and extended the tenure by four years.

"These are mortgage-based loans and a good number of cases are of first home purchases. We are accommodating, even though the law allows banks to take possession of the property without court orders," said U S Bhargav, general manager, Punjab National Bank.

In another instance, a Mumbai-based borrower, faced with an emergency on the personal front, sought a moratorium on repayment. The lender, a large public sector bank, allowed it.

True, public sector banks are known to be more accommodating "� given their genesis, legacy and work ethos "� than the private sector banks, which do at times employ recovery agencies to deal with sticky defaults.

However, there may be more than generosity at play here. The alternative to accommodating is to move in and take possession of the property. But that would take much longer and be far more complex, especially if people happen to be living in the house.

Anyway, as a senior executive with a South India-based public sector bank points out, a bank's business interest lies in keeping the borrower, and the EMIs, going.