EMI Bounce: When a person takes a loan and has a problem paying his EMI, the bank has many rights to recover the loan amount. If a person does not pay his EMI, then the bank or financial institutions can auction his property. For this, it is necessary to follow some rules and procedures. The law related to this process is the SARFAESI Act, which provides guidelines related to the auction of properties.

What is the SARFAESI Act?

SARFAESI Act was passed in 2002. When the loan taker fails to repay the outstanding amount, then in that case it gives the bank and financial institutions the right to recover their money by selling the loan taker's property.

For this, he does not have to take court approval. However, this act states what kind of process the bank has to follow to do so. If any kind of dispute arises regarding this act, it is heard in the Debt Recovery Tribunal (DRT). There are 39 DRTs in the country and five Debt Recovery Appellate Tribunals (DRATs).

What is the process?

The auction process begins when the customer stops paying the EMI. If the EMI is overdue for more than 30 days, it is classified as 'Special Mention Account' (SMA) 1. If this period exceeds 60 days, it is called SMA 2. If there is no payment for more than 90 days, then that account is considered a non-performing asset (NPA), after which the auction proceedings begin.

When the bank puts an account in SMA or NPA, its information is sent to credit bureau companies like Experian, CRIF and CIBIL. This can have a bad effect on the credit score of the customer and the loan guarantor.

If the customer is unable to pay the EMI due to any reason beyond his control, the bank can give him additional time to repay the loan. However, if the customer does not repay the bank's money even after a legal notice, the bank can take possession of the property mortgaged for the loan. This process is initiated under section 13 (2) of the SARFAESI Act. After that, the property is taken into possession through the court under section 13 (4).

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