Publication of defaulting borrowers' photos in SARFAESI notices

Publication of photographs of home loan borrowers in SARFAESI notices: Are we doing the right thing?

The title puts a question, and it is easy to imagine a counter question too – is the borrower defaulting on the bank’s money is doing the right thing? This article examines the wrong involved in defaulting on loan commitments,  but puts a bigger question before the society : are we rightly reacting to the borrower’s default? The article is particularly focused on home loans.

Before we get into the question – let us be aware of what is happening around us. The SARFAESI Act was enacted in 2002 presumably on the lines of the article 9 of US Uniform Commercial Code. The Act is, actually, nowhere even close to that Code. In fact, UCC deals with personal property and not real estate, and therefore, home loans are not at all covered by US UCC article 9. The Act was recommended before the Parliament as one which help reduce the burden of bank NPAs. The picture one got was those so-called “wilful” defaulters who habitually over-borrow from banks, siphon off money possibly even before the  loan repayment starts, and enjoy life at the cost of banks. In other words, the objective was to be stern against promoters of companies that go sick while promoters enjoy the pink of their own health. Little did the Parliamentarians who passed the law realise that the law will be used, as it is being done, vehemently to drag home loan borrowers out of their homes.

No one contends that a borrower should be allowed to go scot free after having borrowed money from a bank or housing finance company, even if it was purchase of a residential house. But is a default of a home loan a case of wilful default that was in the minds of the lawmakers when the SARFAESI Act was enacted? Is it difficult to envisage that there may be zillion reasons for which a borrower may be forced to default on loan EMIs? Once again, financial discipline is important, and it is a settled fact that home borrowers who are unable to pay their EMIs have to suffer foreclosure at some stage. There are hundreds of  thousands of such homes under foreclosure action today in the USA, and therefore, no one should shed tears if borrowers have to face a mortgage foreclosure on account of default of a home loan.

But then, the SARFAESI Act puts a non-judicial route to mortgage foreclosures. The way the section is worded, a  home borrower will first have to lose the roof over his head before he can run to his lawyer to take an action in a DRT. One just needs to take a practical stock of the situation – a person having a salary income of Rs 30000 pm takes a loan that has an EMI of Rs 10000 per month. The ratio works perfectly fine since a debt to income ratio of 33% is one of the best a lender can expect. Also, given that a household can easily manage living costs within a range of 10-15k per month, there is sufficient scope for the individual to pay his home loan without default. Now, say, he loses his job. It obviously will take a few months before he can get a replacement job, particularly in a market as the present one. So, 3 EMIs missing, and the bank classifies the loan as an NPA. The bank sends a loan recall notice, demanding not just 3 EMIs, but the whole of the loan. And in the meantime, the bank starts adding penal interest, which is much higher than the loan interest rate.

The  issue is, where does the individual, out of job and facing his own worries in life trying to find a new job, get the money from, to pay the bank? Not just the EMIs, but the lethal penal interest rate too. So, as would always happen – debt begets debt. He would possibly run to a usurious lender, and borrow at excessive interests to pay the bank off, but sooner or later, will get into a default at both the places.

Here comes the bank with a SARFSAESI notice – pay off the entire loan, along with penal interest and all other charges within 60 days, or face repossession.

The tragedy is, the individual can run to no one for rescue. He would often run with pleading face to the branch manager, but the manager would say – the matter is out of control now.

Now think of remedies available. Is it unlikely that the borrower may have questioned the very claim of the bank? Is it unlikely that the bank might have added wrongful costs or charges which the individual may be disputing? Thanks to the Supreme Court ruling in Mardia Chemicals, the law gives the borrower a right of representation, but the right of representation is a mere lipservice, as the representation goes to the very bank or bank manager with whom the borrower has an issue. The law does not even require the borrower’s grievance to be handled by a senior office who can examine the matter dispassionately. Invariably, if at all the borrower makes a representation, the answer from the bank is going to be mechanical – turning down the representation with a stereotyped rebuttal of whatever the borrower might have said.

So, can the borrower approach his lawyer and seek a redressal? Unfortunately, as the law seems to say, the borrower must first allow the bank to take action (read, take away the borrower’ house),  and go for redressal before a DRT. DRT action may stretch for months altogether. To add to the injury, the DRT may also pass an order for pre-deposit of a large part of the amount demanded by the bank before the application can proceed. Irony is – if the borrower had the money to pre-deposit, why would he let the loan default anyways? But law is merciless, regardless, and concern-less.

Banks are adding insult to the injury by publishing the borrowers’ photographs in the newspapers. This is simply outrageous. The matter was discussed in a Madras High Court ruling  where the High court affirmed of the practice, but the issue was mainly on the grounds of borrowers’ privacy rights, bank secrecy laws, and so on. Our Courts have still not got rid of the mindset that when a borrower defaults, he is not necessarily defaulting because he is not wanting to pay, but because he is unable to pay. Also, over the decades of the way the banking system has worked, courts are simply unable to appreciate the miseries of retail borrower failing to pay a  consumer loan. Therefore, it is a little surprise that the Hon. Judge in the Madras High court above said: “If borrowers could find newer and newer methods to avoid repayment of the loans, the Banks are also entitled to invent novel methods to recover their dues.” This indicates that the publication of the photo of the borrower is also a recovery device, whereas, it was not pointed out before the court that the photo is published only after the recovery action has been taken.

Repossession action having been taken, the question is – why would a bank at all want to do a further damage to the borrower by publishing his photograph too? Surely enough, it is  not the photo of an India’s-most-wanted terrorist to caution the public. If the idea is to caution other lenders, that is taken care of by CIBIL as the financial system is anyway entitled to CIBIL’s database. In any case, other lenders don’t lend by looking at the photo of the borrower. One would understand if default of a loan was a criminal offence, but first, a loan default is a civil wrong and not a criminal wrong, second, no one could hold a person liable of having done a crime other than a criminal court, let alone a commercial bank, and third,  even in criminal wrongs, for the most heinous crimes, courts do not go all out to publish photographs.

Irrespective of legality involved in such publication, what is happening currently is outright wrong. Our brethren who have fallen victims of bad times and are anyway deprived of the roof over their head are being further driven into ignominy by putting their photographs in papers. This is so very cruel, so very inhuman, at least in case of residential mortgage loans. RBI and NHB should put an end to this practice immediately.