What steps can the bank take if people do not repay the loan amount? What Action Does The Bank Take if The Loan is Not Repaid? (Bank Loan Recovery)
When a person or organization needs a bank loan for business or some other reason, the bank makes a rough estimate of how much he can repay by combining his current and future financial position and then disburses the loan after meeting other requirements.
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Willful non-payment of debt is an offense under Section 420 of the Indian Penal Code. If one refuses to repay the loan, he is considered a willful defaulter and the bank can file a case of fraud against him. If such a case is registered and the borrower is found guilty in court, he can be jailed for up to seven years under the prevailing law.
But in general, this does not happen. The fact is that the court door is the last and final weapon used by the bank. Because both time and extra money are involved in court work. Along with the borrower, the bank also has to bear the losses and expenses. In such a situation, if the loan is not repaid (Bank Loan Recovery), the bank first takes steps in how the loan can be settled by planning other measures.
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Some measures are taken by the bank.
When the borrower refuses to pay the loan despite repeated notices, the bank tries the following measures before going to court. A brief overview of it…
Loan Conversion
Unsecured loans (loans where there is no collateral) have higher interest rates. The bank gives you the option to convert your unsecured loans into secured loans. So that the borrower’s monthly loan installment can be reduced in line with the lower interest rate.
Debt/Loan Restructuring
This facility is mainly a home loan. If you are not able to repay the loan within the stipulated period and as per the stipulated loan installments, the bank can extend the repayment period. This reduces the loan repayment and increases the chances of getting the loan back.
Contingency considerations
In case the borrower faces any problem like an emergency situation like loss of a job or temporary stoppage of income due to an accident affecting the business, which makes timely repayment not possible, the bank allows some more time for the same. So that he can repay the loan. You must know that during the Corona period in 2020, banks have postponed such loan payments through Moratorium.
One Time Settlement (OTS)
When it is completely impossible to pay the bank installments due to business failure or complete stoppage of income, you can avail of the OTS scheme by talking to the bank officials. Almost all banks implement this scheme during the last quarter of the year i.e. January to March as they want to show the minimum number and amount of non-performing loans (NPAs) in the balance sheet as on March 31. If a one-time settlement is made, the borrower may be able to get some interesting waivers. Or under this scheme, you can get out of it completely by paying around fifty percent of the total dues in one lump sum.
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Legal action was taken by the bank.
If the borrower avoids or refuses to adopt any of the above measures, the bank initiates legal proceedings against such borrowers. Its brief details are as follows…
- In 2002, the central government passed the Securitization Act to facilitate the process of debt recovery. Under this Act, known as ‘Surface’, if a borrower does not make any payment for a continuous period of ninety days, that account is known as Non-Performing Account (NPA). In such a case the bank first sends 60 days’ notice to him.
- If he fails to repay the loan within these 60 days, the bank has the right to initiate the process of selling his property.
- The bank has to give 30 days of public notice for the property sale process, containing complete details of the property.
- This notice also contains information about ‘how much the bank expects the property to be worth’.The borrower can file his objection to the notice of seizure and the fair value of the property, to which the bank will reply within seven days. After that, however, the bank will have the right to sell the property (the bank can only sell the property against which the loan is taken as collateral).
- From this sale price, the bank will not only recover its loan amount with interest but will also recover all the expenses incurred in meeting the legal requirements and selling the property. Even after that, if any amount is left, it is given to the borrower.
We must have noticed that as much as the door of the court is unpleasant to the common man, it is also unaffordable to the banks. Therefore, banks adopt various measures to make it convenient for the taxpayer to pay the loan.
But, even after giving such concessions, if the borrower does not repay the loan, the bank has to go to court as a last resort to recover the loan. So if you have taken any loan and its installments are overdue, take advantage of any of the above schemes and get rid of the loan as soon as possible, so that you will not have to face any difficulties in getting a new loan in the future.