Undervaluation of properties under one-time settlement auctions.
Taking serious note of alleged irregularities in the one-time settlement (OTS) schemes for recovery of non-performing loans of public sector banks and “undervaluation” of mortgaged properties during auctions, the Finance Ministry has called a fact-finding meeting.
The Ministry has also sought proposals — including amending laws like the Debt Recovery Tribunal Act and the SARFAESI Act — from the banks to improve the system. It has also suggested that the PSBs should make their OTS schemes more transparent.
The meeting, slated for this week, has been called on findings of some instances where PSBs have settled the NPAs for much lesser amounts than the realisable value, official sources said.
Undervalued prices
Also, there have been incidents where mortgaged properties were auctioned off at “undervalued” prices, the sources said. The meeting is to find out whether there was any actual mischief or if it was due to practical difficulties in finding a buyer to pay a higher value for the property as the registered value shown on paper would have been lesser than its actual value, they added.
Therefore, to avoid misunderstandings, the Ministry has sought details from PSBs on the gaps between the outstanding NPA amount and the settlement amount, as well as the practical difficulties in getting back the loan amount or in realising the actual value of the mortgaged property.
“We want PSBs to run on sound principles. Besides, we are answerable to Parliament regarding their finances. Therefore, we want to find out the efficiency of PSBs in loan recovery,” an official said.
The Government could also consider suggestions like amending the DRT Act to ensure faster recovery of the loan amount. In this regard, through amendments, a limit could be set on the number of permissible adjournments by these Tribunals while hearing cases.
Separate committee
Incidentally, to ensure more transparency in their OTS scheme, some PSBs have set up separate settlement advisory committee headed by retired High Court judges.
The banks recover bad loans through channels such as DRTs, Lok Adalats and SARFAESI Act. According to RBI data, the amount recovered as a percentage of the money involved was the maximum through DRTs, followed by SARFAESI Act. The Ministry also wants to find ways to ensure higher recovery through SARFAESI Act and Lok Adalats. Besides, the meeting will also discuss incidents of fraud where fake title deeds of house, building or land were used to get finance from banks many times over on the same immovable property.
What are the guidelines on holding of lok adalats by DRTs(Debts Recovery Tribunals) like:
1. Cut Off amount
2. Jurisdiction
3. Type of loans
4. Role of State / District / High Court legal services authority