Can bank mortgage excessive worth of property for a sme?
K.K.Ganguly
(Querist) 03 July 2012
This query is : Resolved
One of my clients has taken loan from a PSU Bank for buying equipments/tools/machines for starting a basically non viable Diagnostic Center. The Center is running in loss though my client has paid the EMIs from his other business. Once, just before the loan account was about to become NPA, it was rephrased by the Bank converting all overdue interests into principal. Now it has become NPA & the Bank is not willing for any OTS since huge worth of property has been mortgaged by my Client whereas one time settlement for others with less worthy property has been agreed by the Bank.
Before going to DRT I want to know:
Is there any circular/guidelines/rule which states that Bank can not take excessive securities for the purpose of mortgaging from Small Scale Enterprises while granting loan? In this case the mortgaged amount, including hypothecation of the equipments/instruments for which the loan was actually given, is more than 3 times the amount of loan granted. The Bank has issued possession notice u/s 13(4) of SARFAESI ACT,2002.
Would the Ld.Experts kindly opine?
c.p.s. ramachary
(Expert) 10 July 2012
As a matter of fact security aspect is not basis for classification of an account as NPA. It can be otherwise said that an account turns to NPA whether it is supported by any security or not. If the bank obtained excess security, the borrower ought to have objected to it and not now at this stage. Further this cannot be a ground for seeking OTS. OTS other than RBIOTS is discretionary to the bank. There is no circular or rule to argue that the bank cannot take excessive security.
K.K.Ganguly
(Querist) 10 July 2012
Yes, you are right, but my client did not object for the Bank,s demanding security more than 3 times the loan amount. Now that has become the problem, since there is excessive security, the Bank is not agreeing for OTS. With other clients with normal security the Bank has agreed for OTS.
Is there any RBI guidelines/circular directing/advising the PSU Banks to go for OTS? A lead will be appreciated.
c.p.s. ramachary
(Expert) 10 July 2012
No there is no RBI guideline/circular directing PSUBs to go for OTS. In 1999, 2001, 2002 RBI evolved its own policy to entertain OTS. But all of them expired by efflux of time. In 2004 for SME borrowers RBI advised banks to entertain OTS. But this also expired after one year thereafter. At present there are no OTS policies of RBI. Even if your case is covered by those policies OTS may not be accepted now because the OTS should be in tune with the policy i.e. one should act as per the time schedule. Please refer to ORIENTAL BANK OF COMMERCE Vs.SUNDERLAL JAIN & Anr.: AIR 2008 SC 1339
