Thursday, September 9, 2021

How can you reduce the burden of education loan amid coronavirus pandemic?

The coronavirus pandemic has hit just about everyone in some way or the other. People have suffered pay cuts, many have been furloughed and countless more left unemployed. This has happened because the bottom lines of many companies have taken a beating since March of this year. Due to this household incomes have been thrown in disarray which has especially effected those repaying loans.

All kinds of borrowers are in trouble now. For students and recent graduates, repayment of education loans has become a problem because hiring has almost come to a standstill

If you are someone who is already servicing an education loan and are now finding it difficult to repay it, the first thing you should do is to contact your lender and ask them if your loan can be restructured.

In August 2020, the Reserve Bank of India (RBI) had allowed restructuring of loans without classifying them as NPAs to help companies and individuals manage the financial stress caused by the Covid 19 pandemic. And then in May 2021, due to the second wave of Covid-19, it announced a second resolution framework for many borrowers including individual borrowers.

As per the recent guidelines issued by RBI in May 2021, the resolution plan for personal loans (which includes education loans as per the apex bank's classification) may include conversion of any interest accrued/to be accrued into credit facility, rescheduling of payments and granting of the moratorium for maximum 2 years (including first restructuring) based on borrower's income stream assessment. The RBI has allowed lenders to modify the overall tenor of loan restructured accordingly. To be eligible for this restructuring the borrower should have made regular repayment till March 31, 2021. The last date for applying for the second loan restructuring is September 30, 2021.

Gaurav Aggarwal, Director, Unsecured Loans, Paisabazaar.com said, "The decision to choose from the loan restructuring options should be based on borrowers' repayment capacity and the additional interest cost incurred due to restructuring. Those expecting their cash flows to get restored within a few months should opt for the rescheduling of payments while those expecting income disruption to continue for a longer period should opt for the loan moratorium if offered."

How can you reduce the burden of education loan amid coronavirus pandemic?

Synopsis

For students and recent graduates, repayment of education loans has become a problem because hiring has almost come to a standstill. If you are finding it difficult to manage the repayment of your education loan, here is what you should IST

If you are finding it difficult to manage the repayment of your education loan, here is what you should do.

What can existing education loan borrowers do?

What can new education loan borrowers do?
1. Go for a collateral Loan
Most banks allow students to take education loans without collateral. However, you must know that opting for a secured loan with collateral can be a cheaper option.

Pranjal Kamra, CEO, Finology, a Raipur-based Fintech firm, said, "Many banks or financial institutions do not ask for collateral unless your education loan amount is very high. An education loan with collateral offers lower interest rate compared to the unsecured loans as the lender is not exposed to a high risk of default by the borrower. So, if you own any assets like land, property or FD, you can use it as collateral to apply for an education loan."

2. Pay interest during moratorium
Equated monthly instalments (EMIs) of education loan do not start immediately after the loan is disbursed. The borrower can start the loan repayment after the completion of the course or when he/she starts earning. This grace period is called a moratorium. Though the borrower is not required to pay the EMIs during the moratorium period, the lender charges interest (simple interest) which is added to the principal amount.

Kamra said, "Some banks may offer concessions (usually 1 per cent) on the overall interest rate if the borrower chooses to pay the interest amount during the moratorium period. Thus, it is advisable to pay the interest portion of the loan during the moratorium period to reduce the cost of repayment."

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How can you reduce the burden of education loan amid coronavirus pandemic?

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Most banks allow students to take education loans without collateral.

Synopsis

For students and recent graduates, repayment of education loans has become a problem because hiring has almost come to a standstill. If you are finding it difficult to manage the repayment of your education loan, here is what you should do.

By Navneet Dubey, ET Online

Last Updated: Jul 23, 2021, 02:13 PM IST

If you are finding it difficult to manage the repayment of your education loan, here is what you should do.

What can existing education loan borrowers do?

3. Loan subsidy schemes
The central government and various state governments as well offer subsidy schemes to make educational loans more affordable.

Adhil Shetty, CEO, BankBazaar.com said, "For instance, the Ministry of Education offers subsidies to students belonging to the Economically Weaker Section (EWS) category. The eligibility criteria requires that the student's family's gross annual income not exceed Rs 4.5 lakh. The interest accrued on the loan during the course plus one-year moratorium will be paid by the Government of India."

4. Form a sensible repayment strategy
Normally, unsecured education loans are available for a period of up to eight years. On the other hand, secured education loans are available for a tenure of up to 10 years and more.

"Secured education loans are available for longer tenure - up to 10 years for loans up to Rs 7.5 lakh, and 15 years for a loan amount above Rs 7.5 lakh. Though longer tenure reduces the monthly EMI amount, it increases the overall repayment cost. Thus, it is always suggested to go for a shorter tenure. Also, prepayment of education loan does not carry any penalty, so you can repay the outstanding loan amount to save on interest cost," said Kamra.

5. Lenders may offer concessional rates for women, those studying in premier institutions
Shetty said, "Many lenders offer concessional rates to women. They also reserve their lowest rates for students going to premier institutions such as IITs and IIMs, or universities of national importance. The eligibility varies from one lender to another."

Point to note
If you apply for an education loan, then you are eligible for tax deduction under Section 80(E) of the Income-tax Act, 1961. The deduction can be claimed on the interest paid towards the education loan. However, you must know that the tax benefit can only be claimed by an individual who has taken the loan even if he/she is not the actual beneficiary.

Friday, September 3, 2021

Loan Default Is Not The End!

BankBazaar – The Definitive Word on

“Oops! I did it again. I failed to repay. Now I am lost in the game…Oh baby, baby!”

Now that’s one song which every loan defaulter can relate to. Repaying a loan and keeping up with the EMIs can be quite an uphill task. It’s possible to tumble and fall into a spiral of debt from defaulting on your loan. This can be quite worrying and you’re probably wondering what the consequences will be. Well, while defaulting on a loan repayment is certainly something you should avoid, it is not the end of the world and won’t brand you as a criminal.

If you are worried sick about having defaulted on your loan, we have something that we hope will make you feel a little better. There are certain rights which have been established to safeguard the interest of loan defaulters. Read on to know what these are.

Let’s begin. It’s important to know that banks have a provision for restructuring the loan. There are various ways to do this depending on the type of loan you have taken. However, one common method would be extending the tenure of the loan. What happens here is that with the extension of your loan tenure, your EMIs become smaller and therefore, easier for you to manage. However, the bank must perceive the reason of default to be genuine before they do any kind of restructuring. The Reserve Bank of India (RBI) has issued guidelines for this. For example, the loan tenure can be increased by not more than a year in most cases. Foreclosure by selling the collateral with the borrower’s co-operation is also advised as the next step.

Does a default mean that you need to give up ownership of the asset for which the loan was taken?

Owning a house or a car is a dream come true for many because of the easy availability of loans. In the last few years with an increase in the standard of living particularly in the metros, the once conservative and loan-averse investor is now willing to take on loan commitments to satisfy even leisure requirements. However, if you find that you are in a situation where you will not be able to meet your loan obligations, what do you do?

Running away from the lender is not an option. Banks/lending institutions understand that there could be genuine reasons because of which the borrower is unable to make timely payments. For e.g. the loss of a job, or an accident that may have confined the borrower to his / her bed. Banks are more likely to consider your situation if you have always paid your EMIs on time before the things took an unfortunate turn. Based on how genuine your intent and case is, the bank may look for various feasible solutions that are mutually acceptable. The borrower will benefit because he will be able to retain his asset and the bank will also benefit because this agreement will prevent an addition to its non-performing asset (NPA) portfolio.

The various options that can be worked out include:

Rescheduling your debt: After having analysed your financial position, if the bank feels that the quantum of the EMI is what is troubling you, they may be willing to reschedule your debt by extending the loan tenure. That will bring down the monthly EMI commitment, though it will mean more interest outgo in the long-term. However, you should consider the immediate relief it can bring to your current situation. When the tide turns and you are facing better times you can try negotiating with your bank and revert to your old or higher EMI or even prepay your loan. Closing your loan early can help to save excessive interest outgo as long as the bank doesn’t levy a heavy prepayment penalty.

Check This: Should you invest or prepay your loan?

Deferring the payment: If your financial situation is such that there is likely to be a jump in cash flow going forward because of a change in job or any other reason, you may seek temporary relief from the bank for a few months. The bank may permit the same but may charge a penalty for not paying within the time frame agreed upon earlier.

One-time settlement: If you express your desire to pay back and notify the bank about your current financial condition, banks may be willing to give you the option of a one-time settlement. Please note that this will be done on a case-to-case basis. This is a good way to get rid of your loan if you have some money. Usually the settlement amount lower than the original amount you would have had to pay. i.e. the bank may waive off some amount or charges. If your financial situation is really bad, then you may need to file for bankruptcy to free yourself from the loan commitment.

Conversion of the loan in case of unsecured loans: Banks tend to be stricter as far as unsecured loans are concerned. The borrower could opt for converting the unsecured loan to a secured one by offering a security. This will bring down the rate of interest and thus the EMI burden.

Running away from the problem is not the solution. Not only will you undergo emotional stress, you will also end up losing your asset. Remember, your intent to pay off the loan should be evident to the lender. So be wise and talk to the bank representative the moment you realise that you will not be able to meet your obligations. Never wait till things get really bad.

What happens if none of the above options work out?

If none of the above options work, after giving you time to repay your dues, the bank will take the next step which is repossession of the asset (in the case of a secured loan). Here’s what will happen.

Movable Asset (Car/Auto)

The borrower will be given a notice of 7-15 days to pay the dues before the repossession of the vehicle takes place. In case of non-payment within this notice period, the bank will repossess the pledged vehicle.
After repossession of the vehicle, a pre-sale notice will be issued to the borrower giving him seven days to pay the outstanding dues. The pre-sale notice will clearly mention the details of the concerned office and the corresponding contact person for payment and release of the vehicle.
In case the borrower makes the payment in accordance with the agreed terms of a settlement, the vehicle will be released back to the borrower within seven days from the realisation of the payment.
If the borrower does not manage to make the payment, it will be sold through an auction through dealers impanelled with the bank within 90 days from the date of repossession.

Additional Reading: When A Borrower Fails To Repay The Loan!

Immovable Asset (House/Property/Land)

A notice will be sent to the borrower u/s 13(2) of the SARFAESI Act. This can be done only after the loan is classified as an NPA as per the guidelines set by the RBI.
The customer will be allowed 60 days, post issuance of the notice, to regularise the account or come forward to settle the account.
If the borrower refuses to pay, then the authorised officer will ask for the physical possession of the mortgaged property by handing over the demand possession notice to the borrower.
The bank shall proceed with the auction of the attached property after 30 days of taking possession of the property. This is in the event, that the customer does not come forward and settle the loan. The bank shall send the customer a letter intimating him about the venue of the sale, indicating date and time of the same.
The bank will consider handing over the possession of the property to the borrower any time after repossession and before concluding the sale transaction of the property, provided the bank dues are cleared in full.

Any excess amount obtained, after adjusting the dues on the loan, will be refunded to the borrower.

Additional Reading: Home Loan default – How to handle one

The Rights of the Borrower

The SARFAESI act gives the customer the right to appeal against the action of repossession taken by the bank in the Debt Recovery Tribunal u/s 17 within 45 days from the date when the action was taken. If the DRT passes an order against the borrower, then an appeal can be filed before the Appellate Tribunal within 30 days of receiving it. If it is held in the appeal that the possession of the asset taken by the secured creditor was wrongful, the Tribunal or the Appellate Tribunal may direct its return to the borrower, along with appropriate compensation and cost.

You can exercise the following rights if you default on a loan:

Right to Notice

When you fail to pay the loan dues, the bank can’t take any immediate action against you. If you haven’t paid EMIs for 90 days, the bank must serve you a notice of 60 days. Once the notice period is over and if the dues are still unsettled, then the bank is allowed to repossess your property. And before the bank can sell off your property, it has to serve yet another notice of one month informing you about the same.

Right to be Heard

Within the one month notice period, before the property is auctioned, a loan defaulter can file a representation to the authorities and raise objections towards selling off the property. The loan officer has to then respond to the representation and give valid reasons for turning down your objections within seven days.

Right to Fair Value

If the bank has repossessed your property due to a loan default, it does not give them the sole right to decide the sale price of the property. Along with the one month notice informing the customer about the auction of the property, the bank has to send a fair value notice that clearly states the sale price of the property as assessed by the bank officials. However, if you feel that the bank is selling it off at an under-priced rate, then you can raise objections and declare a price that you feel is reasonable. The bank has to consider your plea to receive fair value for your property and will have to revaluate the property once again.

Right to Balance

Since the rates of property are steeply rising with each passing day, there is a possibility that there might be a fair amount of balance left after the bank has settled the loan by selling off your property. You are entitled to get that balance amount as the bank has no claim on it once the loan is settled.

Right to be Treated Politely

Banks are registered organisations and can’t act like independent money lenders when it comes to a loan default. In the past there have been reports of harassment and mistreatment of loan defaulters by collection agents but now banks have decided to follow a code of conduct that is polite and respectful. A collection officer has to politely request to meet you and the place and time of the meeting can be as per your convenience. If you don’t respond to the request, the collection officer may meet you at your home or work place. Also, the agent can meet you only between 7 AM and 7 PM and can’t harass you late at night or in the wee hours of morning. The collection agents are supposed to treat the defaulters in a respectful manner without resorting to abusive language and mistreatment.

The Consequences

Loan default can have serious consequences. Not only could it result in the seizure and auction of your assets, but your Credit Score too, will go for a toss. Even rescheduling debt tarnishes your credit history to an extent and will reflect in your credit report. Obtaining a loan in the future will become an issue which is a huge financial setback. Make sure you take a loan only if you’re sure you will be able to make timely repayments. A good way to do this is to ascertain your personal net worth in terms of assets you own and the money you have at your disposal after taking stock of your existing debts and other financial commitments.

Also, if you ever default a loan payment, do not panic and remember to exercise the above mentioned rights. Check out the best deals on Home Loans, Car Loans and Personal Loans!

The Rights of the Borrower

You can exercise the following rights if you default on a loan:

Right to Notice

Right to be Heard

Right to Fair Value

Right to Balance

Right to be Treated Politely

The Consequences

Also, if you ever default a loan payment, do not panic and remember to exercise the above mentioned rights.

Tuesday, September 29, 2020

Bar On Creation Of Security Interest On Agricultural Land Is Not Absolute – Supreme Court On Sarfaesi

In the matter of ITC Limited Vs Blue Coast Hotels Ltd., 2018(4) SCALE 628, the Supreme Court dealt with the bar of security interest to be created on Agricultural Land, provided under Section 31(i) of the Securitization and Reconstruction of the Financial Assets and Enforcement of Security Interest, 2000 (the Act) and held that the bar is subject to the determination of purpose for which the agricultural land is held by the debtor. The Supreme Court, also discussed the nature of Section 13(3A) of the Act, which provides for a representation to be made by the debtor (before action under Section 13(4) is taken) and to be considered by the creditor and rejection of the offer to be supported by reasons. The Supreme Court held that compliance of this procedure is mandatory in nature.

Facts: Blue Coast Hotels Ltd. (Blue Coast) raised a loan, from the Industrial Financial Corporation of India (IFCI) by creation of a mortgage, under a loan agreement. The mortgaged property comprised of the whole of Blue Coast's Goa hotel property, including the agricultural land on which Blue Coast had proposed to develop villas. Blue Coast defaulted in repayment of the loan, and accordingly its account was declared a Non-Performing Asset. Consequentially, a notice under Section 13(2) of the Act was issued to Blue Coast. In reply Blue Coast made a representation/proposal to IFCI, seeking extension of time for repayment. However, IFCI went ahead and issued notice under Section 13(4) of the Act, thus taking symbolic possession of the mortgaged property.

Blue Coast in order to protect its interest, filed an application before the Debts Recovery Tribunal (DRT) against the action of IFCI under Section 13(4). The DRT held that the notice under Section 13(2) of the Act was bad in law, as the provisions of Section 13(3A) were not complied with by IFCI, and that the demand notice issued by IFCI included the agricultural land to which the provisions of the Act do not apply (Section 31(i) of the Act). This order of the DRT was challenged by IFCI before the Appellate Tribunal (DRAT) and was reversed and set aside.

Aggrieved by this order of the DRAT, Blue Coast approached the Bombay High Court by way of a writ petition. However, during the pendency of the writ petition, Blue Coast made various representations/proposals to IFCI, seeking extension of time for repayment and deferring the auction sale of assets of Blue Coast. However, none of the representations/proposals made by Blue Coast materialized. After publication of the notice of auction three times, on the fourth occasion the auction was conducted, resulting in the sale of the Goa hotel property to ITC limited. Aggrieved by the auction sale another writ petition was filed by Blue Coast, before the Bombay High Court.

Upon hearing of the writ petitions the Bombay High Court confirmed the findings of the DRT setting aside the order of the DRAT, and declared the auction sale to ITC limited as void. Against this order of the Bombay High Court a special leave petition was preferred by ITC limited before the Supreme Court.

Issues: Based on the facts of the matter, the following issues came up before the Supreme Court:

Whether it is imperative for the secured creditor to consider the representation/proposal made by the borrower and where such representation/proposal is not acceptable or tenable to the secured creditor, then to communicate the non-acceptance of the same to the borrower with reasons. In other words, whether the procedure provided under Section 13(3A) of the Act, is mandatory or not.

Whether the inclusion of the agricultural land as security interest in the recovery notice invalidates the recovery notice, as the secured creditor cannot enforce any security interest in respect of agricultural land in view of the bar created under Section 31(i) of the Act.

Mandatory Nature of Section 13(3A): The Supreme Court noted the fact that sub-section 3A, was introduced by the legislature by transforming the observation made by the Supreme Court in Mardia Chemicals Vs Union of India, (2004) (4) SCC 311 where a three judge bench of the Supreme court observed that it would be conducive to the principles of fairness, if the secured creditor would consider the representation/proposal made by the borrower in reply to the recovery notice issued by secured creditor and communicating to the borrower the reasons in case of rejecting the representation /proposal.

The Parliament transformed the observations of the Supreme Court into a provision of the Act with a plain intention to introduce a pause to be taken by the creditor to rethink and reconsider the representation/proposal proposed by the debtor. Therefore, it could not be the intention of the legislature to render futile a provision so introduced, by leaving it to the discretion of the secured creditor to ignore the representation/proposal and proceed to take measures.

The Supreme Court observed that Section 13(3A) clearly states that the secured creditor shall consider the representation/proposal made by the borrower and if such representation /proposal is not acceptable or tenable, the secured creditor shall communicate the reasons for non-acceptance to the borrower. Therefore, a provision which requires reasons to be furnished ought to be considered as mandatory and such a provision is an integral part of the duty to act fairly and reasonably and not fancifully. Hence, even if the legislature has not provided for any consequence for non-compliance with a duty to furnish reasons provided under Section 13(3A) of the Act, the provision nonetheless is "mandatory". However, in view of the peculiar conduct of Blue Coast in time and again making representations to IFCI and then defaulting on them, the Supreme Court denied any relief to Blue Coast in this regard.

Creation of Security interest on Agricultural Land: It was contented before the Supreme Court that the inclusion of agricultural land as security interest in the recovery notice could not be valid in view of section 31(i) of the Act which bars creation of such interest. The Supreme Court observed that the purpose of enacting Section 31(i) of the Act is to protect agricultural lands held for agricultural purposes by agriculturists from the extraordinary provisions of the Act, which provides for enforcement of security interest without intervention of the Court. In other words, the creditor cannot enforce any security interest created in his favour without intervention of the Court, if such security interest is in respect of agricultural land. The exemption thus protects agriculturists from losing their source of livelihood and income i.e. the agricultural land, under the drastic provisions of the Act.

However, reverting to the facts and circumstances of the matter the Supreme Court observed that the mortgage created by Blue Coase was intended to cover the e ntire property of the Goa hotel. Prima facie, apart from the fact that the parties themselves understood that the lands in question are not agricultural, it was observed that having regard to the use to which such lands were put and the purpose of such use, the land indeed was not agricultural and will not be saved by the bar created under Section 31(i) of the Act.

In coming to this conclusion, the Supreme Court placed reliance on the judgment of Commissioner of Wealth Tax, Andhra Pradesh v. Officer-in-Charge (Court of Wards) Paigah (1976) 3 SCC 864, where the Supreme Court interpreted definition of the term 'Agricultural Land' with respect to the provisions of the Wealth Tax Act, 1957. It was observed by the Supreme Court that, the determination of the character of land, the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case, the Supreme Court went on to hold that:

"What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of "assets", but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax. One of the objects of the exemption seemed to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be "agricultural land" for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence." (Emphasis Supplied)

Applying this test, the Supreme Court observed that having regard to the character of the land and the purpose for which it is set apart, the land in question is not agricultural land, and further observed that the High Court mis-directed itself in holding the land as an agricultural land merely because it stood as such in the revenue entries, even though the application made for such conversion was pending.

Analysis and Conclusion: Notably, the Bombay High Court (High Court) while arriving at the conclusion that the agricultural land is not susceptible to the provision of the Act, observed that there is no bar or prohibition for the financial institutions and banks to invoke other laws and related provisions for enforcement of security interest, and that Section 37 of the Act, contemplates the application of other laws

for recovery of debts. Further, the application of Blue Coast for conversion of land to non-agricultural was pending and therefore, unless specifically ordered any use of land for non-agricultural purpose, including the constructions made thereupon are treated as impermissible, illegal and unauthorized. The High Court further observed that permitting and/or allowing such agricultural land to be used for garden and/or special related purpose, by not producing any agricultural products for some time and/or because of non-use of agricultural land for long, that itself cannot be the reason to treat the land as non-agricultural land. The High Court further fortified its conclusion by placing reliance on the judgment of the Supreme Court in State of Karnataka Vs Shankara Textile (1995) 1 SCC 295, where it was held that no agricultural land can be used or treated as non-agricultural land without obtaining prior permission of the concerned authorities.

Departing from the aforesaid position of law set out by the Supreme Court, and setting aside the findings of the High Court, the Supreme Court in the present case, chose to lay down the purpose and user test for the purpose of determining the applicability of the bar under Section 31(i) of the Act. Since the test is a subjective test, in our view, in time to come the test would be susceptible to much mischief by the borrowers. On the other hand, the Supreme Court in the State of Karnataka (supra) (relied upon by the Bombay High Court, in the present case) has taken a strict and objective approach, which is not susceptible to any mischief, and it would be for the lenders to be cautious whilst accepting agricultural land as security. In view of the test laid down by the Supreme Court, in the present case, we foresee precious judicial time of the tribunals/courts being wasted to determine the purpose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Wednesday, November 6, 2019

Banks should be allowed to recast realty loans without NPA tag: Axis Bank MD

Banks should be allowed to recast realty loans without NPA tag: Axis Bank MD - https://www.livemint.com/companies/people/banks-should-be-allowed-to-recast-realty-loans-without-npa-tag-axis-bank-md-11573041630234.html

Wednesday, September 25, 2019

Chief Judicial Magistrates Competent To Entertain Applications U/s 14 SARFAESI Act: SC

*Breaking : Chief Judicial Magistrates Competent To Entertain Applications U/s 14 SARFAESI Act: SC [Read Judgment]*

https://www.livelaw.in/top-stories/breaking-chief-judicial-magistrates-competent-to-entertain-applications-us-14-sarfaesi-act-sc-read-judgment-148375