Dear Sir/Madam:
I am looking for some suggestions/feedback on this very old & interesting case. I will be grateful for any actionable ideas thrown back at me.
Here is the background and I will try to be conscise: Back in 1992, I availed an educational loan in a small town close to coastal city of Mangalore. It was about Rs. 3.6 lakhs. It was paid to me in installments. I used the funds to get my Masters in ME at a US university. By 1995, I was done.
Now some details on how I got the loan. This is really important. My maternal aunt and her husband were gracious enough to provide their residential property as the collateral for the loan. Their son, my cousin, helped me with the formailities of securing this loan, which was notoriusly laborious back then and because the local branch manager was a friend of this cousin's, some how, I got the loan passed on time.
I now believe, this cousin had an ulterior motive in helping me. He needed the property for his own business loan and he was hoping to eventually use the documents for that purpose (his Dad was unwilling to give him the property).
In 1996, I got a job in the US and was ready to repay the loan as per the repayment schedule. By this time, this cousin had lost major chunk of his busines due to mismanagement and was badly in need of funds to the tune of 50 lakhs or thereabouts. So, he approached my naive mother in India (she was the co-signee to this loan) and pressurized/cajoled her to help him with his situation. My mother told him she would sell her agriland and with the proceeds she would repay my entire loan (in 1996 it was about 4.5 lakhs) and then this cousin could use his Dad's property as a collateral to apply for a new loan. When my mother came with the money, this man literally begged her to lend him the money, as he was in real trouble and in return, he promised that he would make the loan repayments, as per schedule, and we should not worry about this education loan. Some of the bank offcials were his friends and he would somehow manage. So, instead of repaying my loan in full and relieving me of this debt, my mother gave the entire amount to this cousin, with no paper work and there began the ordeal of dealing with this nastiness. It seems like an eternity...it is still going on.
This is how good people get into trouble, right. Trust in wrong people, naivete and lack of due diligence. My mother was all that and, my absence and inability to pay close attention from far, meant that, this cousin was trusted and we ignored the matter.
Fast forward...in 2002, we got a call from the bank, and guess what, this cousin had repaid around Rs 70k and that's it! He never informed me that he wasn't making the payments and the bank never sent us 90-day default notice. I am sure, local bank officlas were corrupt and were protecting this cousin by not informing us (He says, he didn't want me to get worried). So, now the bank wanted us to pay the outstanding interest immediately. So, I coughed up around Rs. 2,75,000 just to avoid a nasty situation. Again, this man said, he would take care of the outstanding balance.
In 2005, I gave up my job to pursue MBA and I had a family to take care with no income. This man, again with the help of the bank manager, got my mother to sign a document to release the collateral property and in its place surrendered a friend's property. It turned out, that property already was used to avail some other loan. So,obviously, bank officials colluded with my cousin and were helping him.
Long story short, that loan was not paid after that. Subsequent managers of that branch understood the history of that loan and how my mother was taken advantage of and how prior officals were complicit in the wrong actions of my cousin. Subsequently, he sold his Dad's property. He did not bother to repay my loan.
Now, nearly 24 years later, I still have the loan in my name, with my mother as the co-signee. A good man, former bank official, who is very aware of the situation is trying to help us by negotiating with the bank to clear my loan off the NPA book.
Apologize for the long read...my question is: If I don't make any further payment, will that be a problem for me in terms of buying any kind of asset in India? IS there any specific RBI guideline regarding these really old, 20+ year old, NPA, how to incentivize debtors to repay? Without the complicity of bank officials, my cousin would not have been able to change the collateral property, especially, adding a property that had no clearance. Whatever their compulsions were, they were clearly in the wrong. If that were the case, can the bank pursue my case in court? Finally, is it best for me to settle the whole matter by negotiating the amount to be paid, a reasonable amount, or for justice sake, fight this out with the bank? I know, I have to make that decision, but what would be your advice?
So far, nearly Rs 4.5 lakhs have been repaid on a loan of 3.6 lakhs. My primary grievance is that, bank did not do the right thing by not notifying us of the default (when this cousin wasn't making the payments) and then creating the moral hazard by releasing his father's property from the loan, which meant that he had nothing to lose if he did not repay my loan. I was the one to bear the brunt of his irresponsible actions and carry the stigma of a "loan defaulter." But he could not have done this without the help from local bank officials.
Thanks.
