New India Manifesto – Chapter 5 : Burden Easing Loan Restructuring System

Table of Contents

Introduction

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act authorizes banks to directly auction commercial or residential properties pledged to banks to recover loans from borrowers. There are certain exemptions for certain agricultural lands. However, the revenue recovery proceedings affect all individuals who have taken loans, including farmers. Over 5000 farmers die every year by suicide all over India due to low crop prices, crop losses, increased cost of cultivation, family responsibility and loan burdens. Loan burden is the primary reason for most farmer suicides. To get higher amounts, farmers take property loans instead of agricultural loans, which is one of the main reasons for such suicides.

The bank’s auction process is cumbersome, and they auction the entire property. In some instances, only a portion of the borrower’s land should be auctioned, not the whole property. However, this cannot be done as banks are only interested in recovering their losses and not considering the borrower’s welfare. Since bank auction transactions are digitally recorded, the property will never fetch market prices. In India, the actual transaction value differs entirely from the transaction value quoted legally. People who deal with black money never enter the bank auction system as they will be caught dealing in large amounts. So property owners will lose a minimum of 30 per cent for every property sold via the auction system.

Burden Easing Loan Restructuring System

Burden Easing Loan Restructuring System (BELRS) is aimed at helping all borrowers regarding loans in which property is involved. It includes agriculture loans, home loans, business loans, property loans and other loans like overseas education loans where property as collateral is used. Borrowers’ perspective is prioritized, and their burden easing is this system’s most critical aspect of loan recovery. National Employment System, National Housing System, Targeted Shared Companies, Real Estate Escrow System and EAC Integration Centres are all necessary for the functioning of BELRS.

Benefits of Burden Easing Loan Restructuring System

Any Time Exit: The first benefit of BELRS is there is no specific exit time for loans. Currently, defaulted loans are the only ones considered for the auction. In BELRS, if a person wants to give up the mortgaged house, then it is possible. It can be done even if the person is only midway through the loan and correctly paying the EMI.

Voluntary: BELRS is the voluntary engagement of the borrower. No one forces the person enrolling BELRS as it enters totally by one’s own choice. If the settlement option provided by BELRS is unacceptable, the borrower can exit from it.

Honourable Exit: BELRS guarantees a person a dignified exit from a loan. When people are thrown out of their houses due to piling debts, they feel shameful and insulted in front of their family members, neighbours, work partners and others. This insult is also one of the factors that lead to suicide.

Exit Option for Co-applicant: BELRS provides an exit for co-applicant. In many loans, more than one property is pledged. The owners of the properties also vary. Consider the following scenario in which son in law asks his father-in-law to mortgage their house along with the property of son in law. If the son-in-law defaults on payment, the father-in-law also loses his house. BELRS allows a co-applicant to exit the valued amount of his property from loan default. Consider that the loan is for 50 lakhs, including the interest; the total amount is 65 lakhs. Now the property of the co-applicant can be valued at a price such as 20 lakhs, and interest will be calculated accordingly. When co applicant exits the loan, the person will be freed from all obligations, and only the son-in-law will be responsible for the remaining part of the loan.

Market Offer: BELRS can be utilized as a cash exchange option. When BELRS is applied, a person can be given an additional amount after selling off a portion of their collateral. The system can approach a person via bank to detail the offer. The borrower themselves can register to check if they have such offers. It can include closing the loan or an additional amount provided as part of the property’s appraised value. BELRS can give different options, such as selling collateral completely and partial sale of collateral.

Property Exchange: The location exchange option is available under BELRS. If a borrower wants new property exchanged after disposing of current collateral in another district or state, it is possible under BELRS. State restrictions will not apply, and anyone from anywhere in India can settle anywhere in India.

Convert to Lower EMI house: BELRS will assist in converting from a higher EMI home loan to a lower one by changing from a large house to a small one.

Independent Property Valuation and Processing Directorate (IPVPD)

IPVPD is the branch of BELRS that can guarantee all properties can be sold and borrowers can be relieved of their loans. In addition, IPVPD will work as the implementation agency of BELRS.

IPVPD will work in association with Building Inspection Authority and Real Estate Escrow System. Factors such as property frontage, building structural quality assessment, square feet of the building, road access, electricity access, plot elevation, internet access, water access, disaster-prone region and other factors related to the land will be assessed by the IPVPD. These factors will be used to determine the value of the property. The value should be based on the market rate and not any base price concept.

Once the value is determined, the bank loan amount will also be assessed. For an easy understanding same property of Farmer A will be analysed from different angles.

Individual A has 1 acre of land with a house in it.

Consider a scenario in which the total loan amount of Individual A, including interest, is 14 lakhs. IPVPD assesses the actual market value of the 90-cent plot as 14 lakhs and the remaining 10 cents, which has a house as six lakhs. Individual A wants to retain the home. So IPVD will take away 90 cents of land and leave the remaining 10 cents with the house to the farmer. IPVD does not own the property. IPVD will work as a middle player, connecting different people and institutions willing to purchase this land via BELRS.

Consider a scenario in which the total loan amount of Individual A, including interest, is 20 lakhs. IPVPD assesses the value of the 1-acre land and house as 20 lakhs. In this situation, even if Individual A wants to retain the house, it is difficult as the property’s worth and loan due are the same. In such a situation, there are the following options.

If the loan applicant is above 60, they can be allotted the same house by the national housing system. However, they will only have non-transferable rights, and if the husband and wife die, their children or other family members cannot inherit it. This is an advantage given to the elderly based on their social situation. At the same time, the remaining 95 cents will be recovered for loan expenses. The property acquired so cannot be pledged in future as they do not own it. The people residing in the house only have living rights, not house ownership rights. The remaining loan amount will be paid by the bank allocated under National Housing System. They can also totally give up their existing property and get another house at another location under National Housing System. If they are vulnerable sections, new houses can be allotted under National Housing System for free; however, without ownership rights and just living rights.
If the borrower is below 60, the person can claim the same house under National Housing System. However, the person will have to pay EMI for the same house. The person can also give up the house and claim a new house under NHOS. Since the new home will have fewer square feet than the previous one and lower EMI, it will ease the borrower’s burden. They can also get guaranteed jobs under National Employment System.

Consider a scenario in which the property value of 90 cents was 30 lakhs and was sold at this price, then the owner could have cleared the 20-lakh loan and kept the remaining house and 10 cents. The owner will also get the remaining 10 lakh in the account.

Online Auction System

Lands are sold to the highest bidder under the online auction system on a website created exclusively for selling lands. The complete details of the land in the most aesthetically appealing manner with proper detailing will be published for online auction. In addition, the Real Estate Escrow System and Real Estate Agent Licensing System can ensure they can complete the sale from home.

IPVPD, via the website, will organize the auction and distribute the proceeds to the bank and borrower. Private companies, corporations and private individuals can purchase from the online auction system.

Targeted Shared Company

Targeted shared companies will purchase lands for starting new projects and industries. However, there will not be an auction in the least demanding areas, and the price fixed by IPVPD will be final. If the borrower agrees with the price, they can proceed with the transaction. Targeted Shared Companies can approach BELRS with an offer at a particular location. BELRS-IPVPD will find a client based on the provided offer. In the case of areas with high demand, targeted shared companies can directly participate in auctions.

National Housing System

Building houses under National Housing System require thousands of acres of land at different locations. The portion of the land received in loans can be used in developing projects under National Housing System.

Projects Under National Employment System

NES projects require small land tracts at different locations all over India. Land collected via BELRS can be used to implement NES projects.

Home Floor Conversion Method

Consider the following scenario of house conversion.

If a large house worth one crore is placed as collateral for a 50 lakhs loan, then a different solution can be placed. IPVPD will assess whether the house can be split into two different houses with minor modifications. If IPVPD assesses it is possible, then by using NES contract jobs, the house can be converted into two different houses based on two floors. Once modifications are complete, the additional amount will be added to the loan amount. The borrower cannot exit from this stage, or else the borrower should return additional charges of 5 lakhs used in modification to do so. Using an online auction system, the house’s ground floor can be sold at 55 lakhs and can recover modification and loan amounts. In case the amount received from the auction is higher, the additional amount will be returned to the loan borrower. In this case, the ownership will be split like flats. New rules and regulations will be created generally for all houses under this category regarding usage of the house’s premises, facility usage and utility usage.

People without loans can also approach if they are in dire need of cash. They can choose which floor of their house wants to be sold. Cheaper houses will be considered for allocating homes under National Housing System. The amount the property owner required from the sale should be mentioned initially. They will be allotted a loan for the amount necessary to convert the house from one home into two separate homes. Once the conversion is complete via the contract provided by NES, one storey of the house will be auctioned. The additional construction expense will be deducted, and the loan will be marked paid. The remaining amount will be provided to the house owner after deducting GST.

If any urban housing and rental markets are affected in the future, owners can apply this method to solve their cash crunches.

Existing Loan to New Loan Conversion

If the loan and interest value crosses the property value, then borrowers can be provided with an honourable exit. Consider a situation in which the total loan amount is 50 lakhs. The property value is 45 lakhs. So, the property can be auctioned, and the person can be allocated a new house under National Housing System. The new home under National Housing System has an additional ten lakhs as a loan. Once the 45 lakh property is sold, five lakhs from the previous loan will be carried forward to the new loan. In this case, allot five lakhs as part of the home loan to the ten lakhs loan and add fellow home residents as co-applicants. So, the new loan is for 15 lakhs. They can pay new EMI easier than before because the EMI is lower. If they can prove they can pay a higher EMI, a slightly larger loan can be allotted to build a house outside of NHOS-built houses.

National Integrated Sports and Fitness Centres (NISFC)

Lands in the middle of nowhere and wetlands do not have commercial value. Therefore, in the case of property loans on such lands, it can be converted as NISFC. So, playgrounds such as open cricket and football grounds can be created at such places. There will not be an auction for such lands, and the value set by the NISFC authority will be communicated to them. They can place land under the BELRS auction system for higher rates if they are unwilling to sell at provided rates. However, it is unlikely that such places will find buyers due to location constraints.

Burden Transfer Loans

If children or family members want to transfer loan burdens, including personal loans of parents, to themselves, they will be assisted.

Special Note: This is the fifth chapter of the book New India Manifesto by Blessen T. Sam. The concepts introduced in this book are unique, and referencing the book and the author is appreciated. Support the hard work of the author to modernise India by purchasing a print copy of the book from Amazon or Flipkart. For research collaborations, contact the author at blessentsam@gmail.com.