Home Loan: When Does Borrower become Defaulter?

Irrespective of the loan type – personal loan or vehicle loan or home loan or any other; if you’re a borrower then you will have to repay the complete loan amount in addition to the agreed interest to the lending institution. While every lender offers an easy monthly installment option in case of housing loan; there could be a scenario when borrower is not able to pay the installment, which makes the things difficult; since home loan is a long term loan. There could be many reasons for non-payment of the installment such as job loss, health emergency, existing debt etc.

However in case of home loan, every borrower must be aware of the impact of EMI bounce, what bank does it and when do they tag the borrower as a defaulter.

Whether it’s a home loan or a car loan, if you’ve taken a loan from the bank, you’ll have to repay it along with the interest. Yes, you do get the convenience of being able to easily repay it through installments every month. But if the installment bounces, it can make things difficult. The biggest risk of installment bouncing is in a home loan because it’s a long-term loan.

When does bank considers home loan borrower as a defaulter?

For the first EMI bounce, the banks are not serious and may neglect it. But failure to repay two or more consecutive EMIs will invite notice/reminder to repay the installment. And if this does not happen, then the bank will send legal notice to the borrower. Failure to adhere to the legal notice will finally result in borrower getting tagged as defaulter.

90 Days of EMI Default

When EMI is not paid for 90 days, lending institution will consider the loan account as a non-performing asset (NPA) and the final action taken is auctioning of the asset, in this case, home. But remember that after an loan account is tagged as NPA, the property is not auctioned immediately. There is a standard process lender needs to follow depending on the following categories of NPA.

  1. Standard asset – Loan account remains in this category for up to 1 year
  2. Doubtful asset – After this, it is categorized in this.
  3. Loss asset – When the bank has no hope of recovery, it is marked as a loss asset; which sets the beginning of the auctioning process

Bank Notice before Auction

Public notice is issued in cases of auction. The notice has details of the fair value of the asset, reserved price, date and time of the auction. Borrower has the right to challenge the auctioning process if he/she thinks that the total value of the asset is underestimated.


Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].

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