Five steps to know if you miss paying your home loan EMI during this pandemic

The pandemic has hit the salaried employees gravely and a lot have lost jobs as well. In facing such tough situations, what if you miss paying the EMI of your home loan. Here is a guide that gives a heads up.

Subas Tiwari

Generally, the majority part of one’s salary goes to pay the home loan EMI and when that person has to suffer a job loss or salary cut, the EMI goes for a toss. And, the interest amount is added to your overall balance every month. Consequently, this increases the tenure of the loan as well as many more difficulties may come. If you face such difficulties, first of all, contact your bank and tell them about your situation frankly. The bank will certainly offer you an extension if your credit history is good and you have paid EMI regularly. The bank also has the right to extend the duration of your home loan, which will reduce the EMI.

Three to tango

The bank does not take immediate action if you miss one or two EMIs. Firstly, it will issue a notice if you miss three EMIs in a row. However, the bank will give you a grace period of two months for the last time to resume EMI if the borrower does not pay EMI for six consecutive months. Even after all these efforts, if EMI is not deposited, then the bank declares such loan as non-performing asset i.e. NPA. Now, the bank can seize your property and proceed with the auction process.

What is SARFAESI Act of 2002?

SARFAESI or the Securitization and Reconstruction, of Financial Assets and Enforcement of Security Interest Act of 2002 helps financial institutions, including nationalised and private banks, in securing the quality of their assets in a different way. Banks also use this Act for debt collection, on which a writ was also filed by the common people in the High Court and Supreme Court of many states.

This Act empowers banks to auction property of borrowers. Through this Act, the bank reduces the burden of its NPA. For this, the bank does not need approval from any court. But the bank first tries to ensure that the EMI starts again in some way. When all the options are closed, the bank moves further with the property auction process.

The borrowers have a chance to acquire their property until the day the bank announces the auction date. The borrowers can stop the process of this auction by making a payment to the bank. Apart from this, due to the announcement of the auction process by the bank, some charges will also have to be paid separately.

The SARFAESI Act is commonly used to recover the debt. As NPAs of banks continue to grow and loans were not recovered even after strict action against defaulters, the Act gives banks a form of force through which they can acquire their assets. Let us know some more about this SARFAESI ACT 2002.

Rights of banks under SARFAESI Act

The bank has the facility of money transactions, loans are also sanctioned by almost all banks. Money is issued from home loans to personal loans. According to the RBI guidelines, it is the responsibility of the banks to help common men financially. Arrange loans for them and they can also be given relief on delay in repayment of a loan. Not only this, but banks have also been explicitly instructed that they will give preference to lower-and middle-class people in loan disbursement.

Troubles of banks with the Act

The biggest difficulty of banks is that their NPA is increasing. In 2019, the NPA increased to around Rs. 10 lakh crore. Most of the NPA cases are related to loans. Banks have released money for loans to a large number of people, but their recovery has not been done. Many big industrialists are also involved in this, who have been declared defaulters due to inability to repay the loan amount. They have fled the country after securing loans worth billions of rupees from banks. Apart from this, loans were also sanctioned to promote small companies, development authorities, and cottage industries, but in most cases, banks have not been able to recover.

The attitude of banks for recovery

The SARFAESI Act gives a range of powers to banks. It also includes debt collection rights. It has been said by RBI that banks can recover their loans from people. However, banks have also been accused of misusing this law. In many cases, extortion was done by banks. The banks used to threaten the borrowers by reaching home and then dragging the vehicles in the case of personal loans. Lawsuits were also filed against them in the respective police stations, due to which the common people, who were unable to repay the loan, had to face many challenges.

Banks cannot mistreat borrowers using this Act

True that the SARFAESI Act 2002 gives banks the right to recover loans, but banks cannot mistreat borrowers for this. Recovery agents can go to people’s homes only between 7 am to 7 pm. Can talk to them. Consumers can adopt legal processes matching their needs. If any kind of misbehavior is done by the recovery agents, then customers can complain to the banks. In the absence of a hearing in the banks, the voice authorities can also be written.

SARFAESI Act 2002 for co-operative banks

The Supreme Court has said in a case that the SARFAESI Act will be applicable in co-operative banks as well and such banks are covered under it. Debt collection is an essential part of banking activity and this cannot be excluded from this Act. However, the court has also instructed banks to listen to the customers or borrowers before taking any action.