IndiaLends Advisory

By IndiaLends Advisory

Dec 07, 2018

Human Rights Day: 5 Rights Of A Loan Defaulter

When a lender approves a personal loan application, you have mutually entered an agreement and agreed to repay the loan amount with the interest cost in the stipulated time period. However, due to an unfortunate instance such as loss of job, medical emergency or others, you might end up defaulting the loan. Although, you should try your best to avoid defaulting, here are 5 rights of a loan defaulter:

Defaulting a loan does not mean that the lenders get a complete walkover. Any lender, be it a bank or an NBFC needs to follow the process and give you enough time to repay the dues before they repossess your assets to clear the arrears.

In fact, the lender is supposed to give another 60-days notice before realizing the assets if the borrower fails to pay the dues within 90 days from the date. This is as per the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act, In fact, even if the borrower does not repay within the notice period, the lender will then serve another 30-day public notice before selling the assets.

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Just because a borrower defaults a loan, the lenders do not get a complete walkover. In a case where a borrower defaults a loan, he/she can visit the bank to restructure your loan. Please note even the lenders want their money back, hence they must be willing to hear your side of the story!

During the notice period, you can present your case and state why the assets should be not realized. After this, the officer is liable to reply within 7 days from receiving the notice and give a valid explanation.

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If the borrower does not repay the dues even after the 60-days notice, then the bank is entitled to realize the assets to clear the dues. Before doing the same, the lender first has to issue a notice specifying the fair value of the asset. This is calculated by the valuer’s of the bank along with the reserve price, date and the time of auction.

If the borrower feels the value of the asset is undervalued, he can contest the current auction by bringing a better offer. In other words, the borrower has the right to find a new buyer and introduce them to the lender in a case he/she feels the asset is undervalued.

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One of the important rights of a loan defaulter is that the borrower has the right to keep track of the auction process. He/she can also check if the asset is getting a proper valuation. Just because your asset is repossessed by the lender does not mean you don’t own any right on the amount received via realization. Since most of the auctions nowadays are conducted online, it is easy for a borrower to monitor the auction.

After the auction is completed, the borrower is liable to refund any balance after clearing the dues and cost of conducting the auction. In fact, the possibility of recovering more than you owe is high as the prices can shoot up any time.

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The Reserve Bank of India regulates all banks and NBFCs. Therefore they cannot act like moneylenders in order to collect the dues. In fact, the RBI has specially made regulations after hearing about the conduct of recovery agents of different banks/NBFCs. Moreover, the lenders have themselves stepped back from any bad practices.

Here are a few guidelines that are to be followed by a recovery agent. And are part of the rights of a loan defaulter:

→ An agent can meet the borrower at a place chosen by the latter.

→ If any place is not specified, the agent can visit the borrower’s residence or place of work. However, he should be at his best behavior.

→ The agent cannot meet the borrower at unearthly hours. He should arrange the meeting between 7 am to 7 pm unless requested by the borrower.

→ Agents do not have the right to humiliate or intimidate the borrower or his/her family members.

Although one should never miss his/her payments if it happens due to misfortune. Don’t forget the rights of a loan defaulter and that you can exercise any of them.

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