The scheme, approved at the BoI board meeting held in Jaipur last month, enjoys the support of most of its existing real estate clients. On implementation, it will bring down the bank's NPA level by about Rs 200 crore.

BoI is currently talking with international property consultants Colliers Jardine and Richard Ellis to get their help in structuring the deal, oversee the real estate projects and later to sell it, if required.

The banks' exposure to these developers has turned into NPAs after the builders failed to complete their project as new buyers turned away following the crash in real estate business. The developers are caught in a Catch-22 situation as the overall cost of the projects keeps rising due to piling interest charges, which, in turn, drives away potential buyers. The projects cannotproceed without fresh inflows from new buyers as the banks refuse to lend further to an account that has already turned bad.

Banks are also caught in a similar dilemma as the increased overall project cost makes their ability to recover their dues more difficult. "The new financing structure is borne out of this situation," Bank of India general manager PR Yagnik said.

The deal involves transfer of property ownership to Bank of India with a reverse transfer option to the builder that can be executed once the project is completed. The builders, on their part, pay back all dues to the bank.

A clause in the agreement will also stipulate that the bank will have the right to sell the property and encash its dues, if the builder fails to clear the dues within a specific time frame, say, six months after the completion of the project.

"We had extended loans to these projects when the real estate markets were up. Now the prices are down sharply while the interest charges keep going up," Yagnik said.

Onceready for possession, the builders will also get full payment from their existing customers, who are at present refusing to make the full payment till they take delivery of the house. The builders hopes to pay their dues to banks from this amount, which will enable them to get the project title back in their names from the banks.

Yagnik said Bank of India will be able to reduce their non-performing assets by around Rs 100 to Rs 200 crore through these deals. The reduction in the NPA account will take place immediatly on signing the agreement with the builder. The debt owed by the builder will immediately go out of the bank's loan book and will be replaced by an entry into its fixed assets.

INSIGHT
Novel and practical approach

Bank of India has been among the worst-affected in the recent months in terms of its NPAs. The attempt at recovering its dues from builders is a very novel but practical way of dealing with this problem, and it will certainly ensure a recovery from these assets atleast. Other banks that have similar exposures also should consider the same approach. Banks have to find such innovative ways of dealing with NPAs for the legal system and even the specialised debt recovery tribunals have been failures.