SARFAESI Sales

Properties acquired by wilfully bank defaulters were always auctioned through protracted judicial processes, a system that SARFAESI law simplified. As Jammu and Kashmir is trying to revive its debilitated economy after August 2019, 49 properties in Jammu worth Rs 70 crore are up for auction, reports Yawar Hussain

Bad assets on sale by banks.

In a first, as many as 49 industrial, commercial and residential properties in Jammu and Kashmir mortgaged with banks against loans that have gone bad, have been thrown open for auctioning for bidders across the country. The Mega E-Auction is piloted by the State Bank of India (SBI) on behalf of other PSU banks.

The e-auction of these properties being held under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (SARFEASI Act)—2002, is underway. The outcome will only explain if it would somehow dilute the land ownership rights enjoyed by the state subjects of the erstwhile state of Jammu and Kashmir.

The 49 properties up for grabs till the end of March are all in the Jammu region and include the properties mortgaged to Punjab National Bank, UCO Bank, and Union Bank of India. Among the 49 properties, 15 are Residential mortgaged to Union Bank of India, UCO Bank and Punjab National Bank. The rest of the properties include 13 commercial properties and 21 industrial properties which are all mortgaged to Punjab National Bank. The net worth of these properties is Rs 70 crore.

As per the State Bank of India (SBI), these properties are being offered to people at a much lower rate than the market prices.

“Customers can buy cheaper residential and commercial properties, land, plant & machinery and vehicles,” the SBI’s statement on Mega E-Auction reads.

The move aimed at wooing more bidders have also raised eyebrows among the stakeholders who allege that selling a high-value property at throwaway costs will have a debilitating effect on the economy in the larger context.

The Properties

The general details of the properties (along with their reserve price/EMD) put on e-auction by Punjab National Bank, Union Bank of India and UCO Bank in March 2021, are as follows:

Silklon Processors and Commercial Building of Silklon Processors in JK Textile Park at I.I. Center Hatli Mor, Kathua at Rs 10.64 crore.

 BBF Industries, Samba (Rs 8.34 crore): All part parcel of leasehold property factory land and building measuring 50 kanal (30250 square yards) along with plant and machinery and other fixed assets.

BBF Industries, Samba (Rs 1.12 crore): All part parcel of leasehold property factory land and building measuring 30 kanal (18150 square yards) along with Plant and Machinery and other fixed assets.

Om Sai Ram Industries, Kathua: Plant Machinery at Unit Universal Agro links Kathua worth Rs 95 lakh.

S K Papers: Shed Plant and Machinery at Rs 1.11 crore.

Choudhary Steel Fabrication, Kathua: Single Story Industrial Building with GI Sheet shed at Rs 85 lakhs.

Guru Traders: Commercial building at Rs 1.12 crore.

SV Associates, Jammu city: Commercial plot in Jammu district at Rs 75 lakhs.

Shiva Oil Traders/Rafiq Chaudhary, Jammu city at Rs 1.15 crore.

Fortune Multi Products, Samba: Land of 2042 square feet and House at Mohalla Dalpatian, Jammu City at Rs 1.26 crore.

Parmeshwari Guest House, Katra, Jammu at Rs 1.33 crore.

Toplon Industries, Kathua at Rs 88.05 lakhs.

Natural Industries, Kathua: Commercial building at Rs 1.67 crore.

ESS Engineering, Jammu city: Shop and plot at Rs 1.43 crore.

The SBI said it has put immovable properties mortgaged with the bank or attached by court order to the auction, on e-auction by furnishing all the relevant details that can make it an attractive proposition for bidders to participate in the auctions.

“We also incorporate all relevant details and state whether the same is freehold or leasehold, give its measurement, location, etc., including other relevant details in the public notices issued for auctioning,” SBI’s statement reads.

Bidder’s Pre-Requisites

As per the SBI guidelines for the E-Auction, the bidder needs to have the EMD (Earnest Money Deposit) which is made to SBI to represent good faith to buy a particular property along with KYC documents – to be submitted to the concerned Branch. The bidder also needs to submit a valid digital signature along with a login Id and Password

The guidelines, however, do not put any bar on buying these properties on anyone from outside Jammu and Kashmir.

Non Performing Assets (NPA)

Almost 2000 branches of more than 30 banks operating across Jammu and Kashmir had more than Rs 1.44 lakh crore in their vaults by the end of 2020. The cumulative loan book stood at around Rs 75000 crore, slightly more than half of the deposits. In fact, Jammu and Kashmir owns almost 70 per cent of the cumulative loan book in Jammu and Kashmir.

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Over the years, however, the overall economy has remained in the turmoil since 2010. It tried to revive but failed because of the 2014 floods, 2016 turmoil, 2019 reorganisation and the 2020 pandemic. This was the key factor why the banking sector in Jammu and Kashmir registered a fall in the credit appetite in 2020. Data available suggest that in comparison to 2019, most of the PSU banks had a fall in their credit-deposit ratio and most of them including SBI and PNB, fall in the category of subdued CDR banks in Jammu and Kashmir.

The unstable situation impacted the already fragile economic conditions and it added to the already stressed bank accounts.  By the end of December 2020, the banking sector had an overall nonperforming asset (NPA) of Rs 4062 crore, which means almost 5.82 per cent of the overall advances in Jammu and Kashmir are under stress. This is despite the fact that people managed to return huge debts during the year as the NPAs stood at more than Rs 4100 crore by the end of 2019. (The NPA is actually a gross NPA, it essentially does not mean a net NPA that lacks a revival.)

In comparison to Jammu, Kashmir is working much with the banking sector. With the crises mainly cantered around Kashmir, the NPA is slightly more than in Jammu – against 5.06 per cent in Jammu, it is 6.64 per cent in Kashmir.

District-wise data offers a detailed presentation of the NPAs in Jammu and Kashmir.  With Rs 1700 crore, Srinagar district tops the list of 20 districts with NPA’s at 12.19 per cent. Srinagar had Rs 13951.35 crore advances of which Rs 1700.6 crore stand categorized as gross NPA by the banks.

Pulwama has Rs 162.37 crore NPA (4.83 per cent); Baramulla Rs 231 crore (4.64 per cent); Kupwara Rs 118 crore (3.93 per cent); Bandipora Rs 35.75 crore (3.13 per cent); with 116.19 crore and Rs 41.12 crore) Anantnag and Shopian respective have 2.79 per cent each of the advances as gross NPA; Ganderbal has Rs 33.82 crore (2.68 per cent); Kulgam Rs 30.89 crore (2.1 per cent) and Budgam Rs 55.48 crore (1.77 per cent).

In the Jammu division, the Jammu district has the highest NPA percentage at 7.81 per cent. Being the centre of trade in the region, Jammu has overall advances of Rs 15298 crore of which Rs 1195.2 crore has been categorised at NPA. It is followed by Kathua at 5.25 per cent; Samba 2.30 per cent; Doda 1.62 per cent; Reasi 1.57 per cent; Udhampur 1.32 per cent; Ramban 1.32 per cent; Poonch 1.13 per cent and Rajouri and Kishtwar at 1.07 per cent each.

Since Jammu and Kashmir Bank holds more than two-third f the overall advances in Jammu and Kashmir, most of the NPAs also belong to it. Jammu and Kashmir Bank has put Rs 2581.44 crore of its advances as NPA.

The data suggest the gross NPA the State Bank of India has an NPA of Rs 103.67 crore; Punjab National Bank Rs 189 crore; UCO Bank Rs 17.90 crore; Central Bank of India Rs 33.11 crore; Canara Bank Rs 92.79 crore; Punjab and Sind Bank Rs 54.32 crore; Bank of Baroda Rs 20.29 crore; Union Bank of India Rs 27.42 crore; Bank of India Rs 191.84 crore; Indian Bank Rs 21.05 crore; HDFC Rs 65.09 crore; ICICI Bank Rs 14.40 crore; Axis Bank with Rs 11.60 crore; J&K Grameen Bank Rs 180.20 crore; Ellaquia Dehati Bank Rs 105.61 crore; Jammu Central Cooperative Bank Rs 95.25 crore and Baramulla Central Cooperative Bank with Rs 107.7 crore.

What is interesting, the NPA is not in business alone. Even the government schemes have a default element. The schemes with the highest NPA’s in Jammu and Kashmir include the National Rural Livelihood Mission having 1.67 per cent; Prime Minister’s Employment Generation Programme 1.72 per cent and National Urban Livelihood Mission 2.62 per cent.

SARFAESI

The properties in default have revived the SARFAESI debate in Jammu and Kashmir.  The law enacted in 2002 by the Lok Sabha allows the financial institution (banks) to recover willful defaults beyond one lakh rupees by disposing off the assets mortgaged by the borrower. Normally, this process, in the case of bad loans, would take place through courts which could take a long time and entail costs.

After the law was promulgated, the banks can do it quickly after issuing a notice without going to courts. The takeover of assets is limited to recovering the principal amount and not the interest which the account might have accrued till the account goes bad. This law replaced the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993.

The SARFAESI law became controversial in 2016 when the Supreme Court made it applicable to Jammu and Kashmir which then had special status under the now abrogated Article 370.

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In 2015, the Jammu and Kashmir government had contended in the High Court that the SARFAESI Act, which the parliament passed in 2002, was not applicable to Jammu and Kashmir due to its special status under Article 370, which the Supreme Court had overturned.

Following apex court’s order to make SARFAESI applicable in Jammu and Kashmir in 2016, the apprehensions of non-state subjects being able to buy the mortgaged property of the erstwhile state had surfaced leading to civil society’s backlash.

In view of the crisis, the then Peoples Democratic Party-Bharatiya Janata Party coalition government came up with an Asset Reconstruction Company (ARC) which was mandated to buy mortgaged properties from national and PSU banks operating in the erstwhile state in order to prevent outsiders from buying a property in Jammu and Kashmir.

However, with the abrogation of Article 370 in 2019, the banks have now thrown open the mortgaged property for sale to any bidder across India.

The ARC

“The Asset Reconstruction Company set up out of Jammu and Kashmir Bank was mandated to buy properties which the other banks wanted to sell in the market,” Dr Haseeb Drabu, the then Finance Minister, who was instrumental in setting up the Asset Reconstruction Company back in 2017 said. He said the SARFAESI Act was applied to Jammu and Kashmir prior to the BJPDP government.

Now the reading down of the Article 370 has undone that entire process, right now the main argument is that the bad loans are dictated more by the situation rather than individual choices of the borrowers.

Drabu, who has handled the public finance and banking since 2002 till he was sacked as Finance Minister of the Jammu and Kashmir in 2018, said Jammu and Kashmir economy can be gauged from the fact that it has been facing lockdowns since 2016.

“Rest of India faced a lockdown now but for Jammu and Kashmir it has been a lockdown in perpetuity since then,” Drabu said, adding that the 2019 lockdown was different than the 2016 lockdown and Covid-19 lockdowns because the supply networks were choked under the latter.

He said what made 2019 lockdown different and more impactful for the Jammu and Kashmir economy was that the supply networks including the transport for goods were stopped.

“See if I had a bucket of apples during the 2016 lockdown, I could send it for selling but during 2019 our economy suffered a lot,” Drabu said. He said the Cobvid-19 lockdown had its own impact because there was a lockdown across the country.

Drabu shares the concern that the policymakers must consider the situation in which the loans might have turned bad.

Business Response

Chamber of Commerce and Industry Jammu President Arun Gupta said that the business environment across Jammu and Kashmir has been stressed since August 5, 2019.

“We even told Reserve Bank of India officials that they should give relief to businesses in Jammu who have suffered due to twin lockdowns,” Gupta said. He said he would take up the matter of these 49 properties in the Jammu region being auctioned with the government and the SBI. “I will take every step to stop this. We couldn’t do business for the past two years. If there has been no business then how can we pay our dues? The government has to understand this.”

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Gupta said auctioning of any property by the bank below market price would not be allowed by them until and unless the borrower is a “wilful” defaulter. “I asked RBI also to revisit their strategy towards the business community in Jammu and Kashmir. They have to see and rectify if they are troubling someone who couldn’t pay his dues because of the twin lockdowns,” he said.

In Kashmir which has slightly more stressed assets, the data compiled by the industry and commerce department suggests Kashmir has 40.82 per cent of the industrial units currently sick.

Sheikh Ashiq, Kashmir Chamber of Commerce and Industry President said the decision to auction these properties has been taken in a “hasty” manner because the NPAs across India have been put on hold owing to Covid-19 pandemic.

“There are thousands of accounts which have turned bad,” Ashiq said. “After an account turns bad, the banks resort to recovery which can only happen when there is positive lending which, however, in Jammu and Kashmir continues to be poor.”

Ashiq said the government needs to have a “humanitarian” approach for recovery of any loans which have turned bad due to twin lockdowns in Jammu and Kashmir. He said there is also a mafia which is forcing these auctions so that they can buy these properties at cheap prices.

“Overall the business is down across the world. Who would buy these properties in these times? There is a mafia,” he said, insisting the Government needs to intervene so that borrowers are given sufficient time to repay their loans. “We aren’t saying that people won’t pay. But the government should give all the concessions available under the RBI’s domain.”

Asking the banks to keep the auction on hold, Ashiq suggest the borrowers must go for a one-time settlement.

Kashmir Traders and Manufacturers Federation (KTMF) President Muhammad Yaseen Khan said the people who have borrowed the money should return but there has been an adverse impact on Kashmir and Jammu regions since August 5, 2019.

“It isn’t the ripe time to do these auctions. The government should step in and give at least one more year to these people for repaying their loans,” Khan said. He said no such activity is being carried out in any other part of the country. “I fail to understand why they are doing this.”

Khan said that they had a meeting with the J&K Finance Department where such issues were discussed. “They assured us some things but then there was no implementation. We only have 20 per cent business activity than routine,” Khan said, adding that they don’t know who to talk to about these things now. “The banks should understand our problems by seeing their own conditions after the Covid-19 pandemic.”

Federation Chambers of Industries Kashmir President Shahid Kamili said the move to auction the properties is “totally unjustified.”

“People got no time to revive since August 5. Business is going down only. The government shouldn’t be cruel and behave like a butcher,” he said. He said instead of holding the hands of the industries in Jammu and Kashmir the government is trying to behead them.

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