Property Portals Are Aiding Recoveries For Banks

Banks are increasingly tying up with real estate listing portals to sell properties repossessed from defaulting borrowers to increase chances of recoveries.

A number of lenders and non-bank financial companies have partnered with portals such as MagicBricks and Quikr Realty in the last few years to list and auction repossessed properties. That’s in addition to earlier efforts to sell such assets through third-party websites, including Auction Tiger, TenderWizard and Bank E-auctions.

According to the Reserve Bank of India’s rules, a loan turns bad when a borrower has not repaid obligations due for 90 days. In case of defaults on mortgage or business loans, lenders have the right to repossess and sell assets provided as collateral after moving the Debt Recovery Tribunal, National Company Law Tribunal and other judicial authorities.

Property portals enhance transparency for potential buyers and lenders in such sales and improve chances of recovery, given that websites like MagicBricks have a larger reach, according to Pankaj Kapoor, founder and managing director at property consultant Liases Foras. “These websites are able to distribute and market the properties to a wider set of buyers. In the past, buyers would have to travel to property, physically check the conditions of the property and documentation themselves, which is time-consuming.”

Expanding Reach

In September 2018, the Department of Financial Services directed public sector banks to setup an electronic auction platform for selling confiscated properties.

Last week, the Finance Minister Nirmala Sitaraman officially launched the common e-auction platform called ‘eBkray’ to help banks improve the realisation of value for properties of defaulters that are attached and put up for auction. “There has been information asymmetry when bank-attached assets are auctioned. This will come to an end with the launch eBkray,” she had said.

The platform, managed and operated by Indian Banks Association and MSTC Ltd., provides potential buyers with a property search function and links to e-auction websites that are conducted by state-run banks, according to an official statement. It also features a single-window access to information on the properties up for e-auction as well as a facility for comparison of similar properties.

Over the last three years, state-run banks have attached properties worth over Rs 2.3 lakh crore. As of last week, banks had listed a total of 35,000 properties on the platform, it said. As of Jan. 2, 2020, around 18 participating banks had listed 2,474 residential, 569 commercial and 329 industrial properties on the portal for auctions.

But the platform has a limited reach as it is only a listing website with a strong search function and the auctions take place at the bank or on third-party platforms, said a senior banker on the condition of anonymity. That’s why lenders are expanding their reach to customers through established property websites and brands, this person said.

MagicBricks launched its e-auction platform in 2017 and has partnered with State Bank of India, Indian Overseas Bank, Union Bank of India, PNB Housing Finance and Federal Bank, among others, to sell repossessed assets.

SBI was one of the first major banks to tie up with the website in 2017 when it launched an online property show for residential projects approved by the lender.

“Gone are the days when auction notices used to appear as classified ads in a nondescript part of a newspaper. Today, banks are investing in online marketing campaigns to enhance the visibility of the available re-possessed assets for a significant period of time ahead of the e-auction day,” Sudhir Pai, chief executive officer at MagicBricks, told BloombergQuint. Ever since the launch, he said, the platform has auctioned over 3,000 properties worth more than Rs 1,000 crore.

Ahmedabad-based Auction Tiger is an e-auction website that banks, NBFCs and asset-reconstruction companies have been working with since 2012 to auction properties.

It’s operated e-Procurement Technologies Ltd. that also provides services such as a common tender and procurement platform.

A senior manager at the company, who didn’t want to be identified, said in 2018-19, the portal auctioned over 44,000 repossessed properties for lenders and is on track to sell more than 50,000 this fiscal.

Since the portal provides all documentation about the property, pictures and details of the bank officers in charge of the auction, banks have seen their recoveries improve year-after-year, the person said.

Improving Transparency

Earlier, banks and non-bank lenders conducted physical auctions to recover outstanding dues at specific branches, after notifying the details of the property on their website and in newspapers.

But buyers raised complaints that the bank-conducted auctions tend to favour certain wealthier customers due to collusion by agents and local bank staff, the banker quoted earlier said.

Bank auctions lacked transparency and there were issues with the property titles, the property’s condition, tenancy rights and other issues, the person said. E-auctions brought in another layer of third-party diligence by the portals.

In December, Federal Bank partnered with MagicBricks to sell 30 homes worth Rs 50 crore to recover dues.

Listing on the portal addresses the concerns about banks quoting a higher base price since a buyer can compare it with other listed properties, according to Ashutosh Khajuria, executive director and chief executive officer, Federal Bank.

“The price-discovery on the third-party platforms is much better and it helps address concerns that the auctions are not skewed,” he said. “Ultimately, we cannot keep inviting buyers to our platforms like in the old days of banking. Today, through digital banking we have to reach out to customers where they are.”

Pai said e-auctions offer a transparent and fair price-discovery system and MagicBricks handholds the potential buyers.

“This increases participation in the e-auction and enhances chances of repossessed properties getting sold quickly,” he said. Moreover, he said, what makes these properties an exciting proposition is the fact that they are available at an average 20-25 percent discount to the market value.