A loan defaulter is the one who fails to pay the loan EMIs and outstanding due amount, which should be paid by the borrower as per the loan agreement. Consider you have defaulted on a loan, what should you expect next? Basically, the financial institution by law can take necessary steps in accordance to the loan agreement and recover the borrowed amount. But, even as a loan defaulter, you are entitled to a few rights.
Below, we have discussed rights of a borrower and the steps a bank/NBFC can take to recover the outstanding amount.
- Right to Ample Notice
Financial institutions have to follow a process when dealing with a loan defaulter. A default does not immediately deem you as a criminal or strip you of all rights. The rights of a loan defaulter make it necessary that the bank/NBFC gives you time to repay dues before deciding to repossess your assets to recover the outstanding amount. It is under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act that banks initiate proceedings.
- If your borrowing account is a non-performing asset (NPA) because the repayment is overdue by 90 days, then the lending institution has to issue a 60-day notice as time to repay the said dues.
- If you fail to repay in this notice period, it is only then the bank can go ahead to sell your assets.
- Also, to sell the assets, the financial institution has to provide another 30-day public notice that mentions details of the sale.
- Right to Ensure Fair Value
If you do fail to clear the dues or respond during the notice period, the bank can begin the process of auctioning of your asset/property to recover dues. But before that, the bank has to issue a notice that specifies the fair value of the secured assets as determined by banks’ valuers. The notice must also carry details such as date and time of auction, reserve price, etc.
As per rights of a loan defaulter, you can object if the asset in question is undervalued. You can justify the objection by conveying a better offer, which will be looked into by the valuers to make a decision. Thus, you can look for prospective buyers for a better offer yourself and introduce him/her to the lender, if you think the property can yield a better return.
- Realise Balance Proceeds
After recovering the dues and expenses related to the auction, the bank must refund the remaining amount to you, as any overhead amount legitimately belongs to you. As value of the property or asset can shoot up anytime and greater than the amount you owe, it is possible to get a refund in case the earning from the sale is higher than outstanding dues.
You must keep a track of the auction process than forgetting the asset altogether just because it is repossessed. This will help you understand the amount earned on the property and the amount you can expect to return to you.
Read More: Ways to Get out of a Personal Loan Default
- Right to be Heard
According to rights of a loan defaulter, you can make a representation to the authorized officer regarding any objection to the repossession notice. The representation can be done during the notice period. The officer will reply within 7 days about the raised objections, and give valid reasons if he rejects or accepts the said objections.
- Right to Humane Treatment
Banks are regulated entities and cannot misbehave with you even if you have defaulted on the loan. While trying to recover dues, they have to abide to certain code of commitment to customers as per the RBI. Here are rights of a borrower that bank has to keep in mind when establishing contact with you to recover dues.
- The bank agent can contact you at a place that you choose. In case you have not specified a place, the agent can visit your place of work or residence.
- The agent has to respect your privacy during the visits. He/she must ensure a decent and civil behaviour and cannot visit you at unearthly hours.
- Visiting hours are usually between 7 AM to 7 PM, until your working hours ask for a change in the timings.
- The agent cannot intimidate, harass, or humiliate you and your family members.
As a borrower, you should try not to default at loans. Have a practical financial plan in place so that you can manage the EMIs. But in case you land up in a financial crisis that makes you a loan defaulter, you must be aware of your rights and the processes that financial institutions can initiate to recover outstanding dues.