A super specialty hospital in Andhra Pradesh, 1.46 acres of commercial land in Tamil Nadu along with 51,160 square feet of hotel building are among the properties that will be auctioned by country’s largest lender, State Bank of India (SBI), this month. SBI will conduct what it calls a mega e-auction on March 5 (Friday).
According to Indian banks auction properties information website, which displays the details of properties that are put up for auction by different banks, SBI has notified a total of 522 properties for auctions in the month of March alone. Of these, 316 are residential properties and 109 are commercial properties, 70 are industrial properties and 27 are other entries including tourist vehicles. These include houses, land plots, factory units and motor vehicles etc.
Some of these properties are located in prime areas. The list of auction properties include names like Palaparthy Super Speciality Hospital in Andhra Pardesh, along with its all medical equipment and fixed assets. SBI has kept a reserve price of Rs 91.3 crore for the property for the auction that is scheduled to happen on March 5.
Interested bidders will have to deposit 10 percent of the reserve money in advance to participate in the auction. Similarly, SBI will auction Hotel Milestonnez Pvt Ltd, in Kancheepuam Tamil Nadu and has kept a reserve price of Rs 27.04 crore for the property, according to the IBAPI website.
Reserve price is the minimum price that can be bid by prospective purchasers. Bank will not sell the auction properties below that price. To participate in the auction for a particular property, the bidders need to deposit a certain amount, say 10 percent of the reserve value upfront which is called EMD (Earnest money deposit).
Is buying bank auction properties a good idea?
Banks auction such properties in a final attempt to recover whatever value is left out of these assets. In most cases, banks suffer loss in such auctions but that’s still better than the entire money going bad. Through bank auctions, investors can get up to 20-30 percent discount to the market price. Hence, such deals make sense for investors.
But, some caution is warranted. To begin with, these are properties where borrowers have defaulted on their bank loans and where the bank has initiated recovery proceedings. There is a possibility that some of these properties may be caught in litigations. Hence, bidders need to first verify the details of the property before bidding for such properties, according to experts.
“Mostly, in these auctions, only professionals participate. These are people really in a position to assess such properties. It is not everybody’s game,” said Naresh Malhotra, former SBI banker and a senior banking consultant. “But, retail buyers can look at such properties after doing proper due diligence,” Malhotra added.
How does the process begin?
According to SBI website, the process begins when the respective Branches of SBI publishes the advertisement in the leading newspapers (English and Vernacular). The advertisements are also published in Social Media (like Twitter, Facebook, Instagram etc.). This happens, when recovery notices do not yield adequate responses.
This advertisement contains the details of websites where the prospective bidders can access the particulars of locations of the properties with full details. It also guides the prospective bidders on the pre-requirements for participating in e-auction.
“We at SBI are very transparent when putting immovable properties, mortgaged with the Bank / attached by Court order to auction, by furnishing all the relevant details that can make it an attractive proposition for bidders to participate in the auctions,” the bank said.
“We also incorporate all relevant details and state whether the same is freehold or leasehold, give its measurement, location etc., including other relevant details in the public notices issued for auctioning,” the bank added.
Potential buyers can view the details of such properties put up for e-auctions through the links provided in the advertisement. There is designated contact person also for auction at the Branches whom prospective Buyers may approach to for any clarification regarding the auction process and the property he /she is interested in and may inspect the properties of their interest, the bank says.
Are buying these properties risky?
What are the areas one needs to be cautious while buying such properties? As mentioned above, the buyers need to be watchful of legal tussles involving such titles. Also, there may be cases where one property is owned by multiple individuals or entities.
Banks may auction the property following defaults by any one of the parties. And the buyer needs to be prepared for legal challenges if any other partners move court, said another Mumbai-based banker who didn’t want to be named. The buyer needs to also check whether the auction property is already occupied by a party and if the tenants/ occupants are willing to vacate the property post purchase.
“Still, these are the least risky assets because banks do the due diligence and once you pay up the money, the transfer happens immediately,” said Malhotra.
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