You must Sign In to post a response.
  • Category: Miscellaneous

    What will happen if State Governments Pledge their Buildings to Banks?

    Today the front page news on The Tribune with title as Cash Crunch: Punjab to mortgage buildings astonished me as free fall of rupee against dollar was afresh in the mind. When individuals or even big corporate go to the bank to borrow money against mortgage of immovable property the banker ask the basic questions:
    1. What is your source of income?
    2. What is your repaying capacity to pay installment and interest?
    3. What is the projected income?
    4. Are the projections based on past trends or are imaginary?
    5. Based on projections DSCR that is debt service coverage ratio is worked out and checked if it is comfortable to repay the loan.
    6. Is the immovable property easily sell able and realizable in the market.
    7. What is the purpose of the loan.
    8. Is it a takeover from other banker who wants to get rid of the NPA (Non Performing Loan) - as in the present case loan is sought to repay the overdraft taken from the center.
    9. Can the bank take possession of the property if loan is defaulted.

    I think such state governments may establish overdraft limits with such easy to approach banks (thank God it is not Private Bank controlled by Multi Nationals - who would have granted the loan on much soft conditions to secure exclusive dealing certificate from the borrower that is State Government).

    It is a thought provoking news as some RTI activist might like to know the name of the Bank (not disclosed in the news item) and terms and conditions of sanction as such loans can jeoparadise the interests of the depositor hard earned money kept in the Banks.
  • #442835
    If State Governments Pledge their Buildings to Banks, finally they will end up in a situation were they can't repay the amount and thus the buildings will be taken by the bank and will be sold on auction.
    "Do not give up, things might not favour you always"

  • #442876
    This is the precarious situation for any one. I think India has not encountered such a problem so far. If at all a state government pledges its buildings,then it is the last government in that year. Because we know the repaying capacity of any state. Many states which borrowed money from International funds are unable to pay back except Gujarat. So if they pledge their buildings too, then it is difficult to get them back. Moreover who are going to buy those buildings, in case the banks take over them and auction it. That is again a million dollar question ?
    K Mohan
    'Idhuvum Kadandhu Pogum "
    Even this challenging situation would ease

  • #442887
    It is ridiculous to hear that a government is mortgaging its properties for cash crunch. I should call it as funny government with funny people who don't know how to rule. Banks should not entertain such mortgages by the government.
    No life without Sun

  • #442889
    The buildings belonging to the government and which are not in use may be pledged or sold. The lands belonging to the government are sold in Andhra Pradesh. They have many properties which do not yield income and are useless. Such buildings may be pledged.
    " Be Good and Do Good "

  • #442906
    Hello everyone,

    Yes this news is not a good news for all of us since because it is going to add another the loan and not profit in the government's kitty. Some money will surely be available but if that government fails to repay then it would lead to a heavy loss and the citizens should come forward and question them and ask them the reason behind it.

    If the government is going to be in profit then there is no any issue but if it fails to transact properly then it will an enormous loss. And if we people object it then they will have to stop such practices and think of clearing every loan incurred in the name of respective state governments.

    "Don't Worry about results, Its time to perform every now and then".

  • #442908
    @Rao, Highlighted issue was that if the mortgaged property is not sell able or realizable then Bank is likely to suffer losses from Non Performing Asset and is it wise for the depositors to keep their hard earned money in such bank or banks, who jeoparadise the interest of their depositors, by not taking prudent decisions and following sound policies of financing against immovable properties or real estate as even U.S.A. had to bear the burnt of great american recession in the recent past to sub prime lending crisis where there we no buyers to buy the mortgaged properties.
    Ashok Goyal

  • #442954
    Mr Goyal,

    I accept your point. The banks are already suffering from bad loans. The position of the banks is not good and the depositors are exposed to risk.

    " Be Good and Do Good "

  • Sign In to post your comments