The Bank of Baroda (BoB) and the State Bank of India (SBI) will be hosting e-auction of properties on October 22 and 25, respectively. Both the banks have tweeted about their online auctioning events.
Banks put mortgaged properties on auction when the borrower defaults. To compensate for the loss, the banks put such properties on auction through the Indian Banks Auctions Mortgaged Properties Information (IBAPI) portal.
BoB will be putting up more than 570 commercial and residential properties on auction while SBI, more than 1,000. A source in BoB confirmed that the number of defaults has gone up due the economic impact of the Covid pandemic. Despite the government’s efforts to minimize loan defaults by restructuring accounts or by providing extra funds, the level of non-performing assets has increased. Those with small businesses of less than Rs 1 crore have been affected the most, shared the inside source.
Potential buyers can invest in such properties as they are usually available at lower rates, but there are hurdles to be wary of.
“There is a notion that an auctioned property comes at a cheaper price. But there is an expectation lapse for a prospective buyer,” says Anand Moorthy, Business Head, Data Intelligence and Asset Management, SquareYards, a proptech platform.
Moreover, since the documentation may not be available properly for such properties, buyers need to be more diligent. “The process of this bidding is not that popular because of the operational issues one faces (such as not being able to physically visit the property),” adds Moorthy.
Broadly two kinds of assets go on auction: home loan defaults and defaults on corporate loans or Lease Rental Discounting (LRD) loans.
The price advantage, however, can be attractive, which is an opportunity, specifically the home loan properties. “For these, the buyers can get 5-10 per cent discount, provided banks have all the documents,” says Moorthy. The corporate loan default properties may not get much traction as they can cost over Rs 2 crore, he adds.
Read all the terms and conditions carefully and be clear about the legal aspects. “The security provider/borrower of the loan has a right to offer the defaulted amount to the bank up to the very last stages of the culmination of sale of the mortgaged property. In such a case, even if the successful bidder has paid the earnest money and subsequent deposit, if the borrower offers to pay the bank a higher amount, the bank may cancel the sale to the successful bidder and restore the property to the security provider/ defaulter,” says Mani Gupta, a lawyer with law firm Sarthak Associates.
Look out for other encumbrances as well such as unpaid taxes. These will be recovered as arrears from the buyer over and above the winning bid. “A successful bidder purchases the property on an ‘as is where is’ basis. Such encumbrances could significantly increase the actual cost of acquisition and/or lengthen the time taken for the successful bidder to get full ownership,” adds Gupta.
If a property appears attractive despite these issues, then buyers can participate in the e-auctions held by lenders and take advantage of the lower prices.