Debt trap: How SARFAESI Act is driving the poor in Kerala to suicide, despair

On February 2, 26-year-old Vishnu Vinayan, a resident of Kanjani in Thrissur district of Kerala took his life by hanging. According to his family, Vishnu, who worked at an aluminium fabrication unit, was deeply depressed after the family received a notice from the South Indian Bank to vacate their house.

The notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002, followed the family’s failure in clearing a loan worth ₹8 lakh that Vishnu’s father had taken to build their house. Although the family had already repaid the principal amount, the outstanding interest remained, adding to their financial burden.

“He was incredibly stressed and fearful that we’d lose our home. The bank’s recovery officer had even threatened us, demanding the house key by February 1, so we began packing up our belongings. But I never imagined my child would do something like this,” said his sobbing mother, Omana.

Compounding the grief caused by Vishnu’s demise is the family’s anxiety over their bank liability. They are worried that if the bank seizes their house, on which they invested over ₹30 lakh, they’ll have nowhere else to go.

In September 2022, 19-year-old Abhirami, from Sooranad in Kollam district, tragically ended her life after Kerala Bank officials posted an attachment notice in front of her house. When Abhirami’s parents and relatives protested refusing to bury her, the Kerala Bank and the state government attributed the incident to SARFAESI Act. This sparked outrage in the Kerala Assembly with the opposition urging a moratorium on attachment activities by the bank.

In 2019, a mother and daughter, died by suicide setting themselves on fire at their home at Marayimuttom in Neyyatinkara after an attempt by a nationalised bank to repossess a house mortgaged for ₹4.5 lakh. The duo’s deaths too had sparked public outrage over the lending practices of banks, especially the SARFAESI Act, with leaders from various political backgrounds criticising the perceived double standard. They condemned the leniency shown towards corporate defaulters and large-scale debt evaders, while aggressively pursuing loan recovery from minor debtors to balance the books.

Draconian Act

The SARFAESI Act of 2002, which claims to be aimed at safeguarding the interests of banks and financial institutions by facilitating the recovery of Non-Performing Assets (NPAs), allows banks to initiate recovery proceedings independently, without court or tribunal involvement. Under the Act, banks can recover debts through two methods — seizing secured assets, with the authority to lease, assign, or sell them, or assuming control of the borrower’s management or business until the entire debt is repaid.

Section 13 of the Act enables ‘Enforcement of Security Interest’ without court or tribunal intervention. Section 13(2) empowers secured creditors to demand full repayment from borrowers within 60 days of issuing a notice if they default on secured debt repayment or instalment. Failure to comply allows the secured creditor to exercise rights outlined in the subsection.

“More than 250 people in Ernakulam district alone, majority of them from marginalised and Dalit communities, have fallen prey to the debt trap. Most of them have received notices under the SARFAESI Act,” says Jenni VC, the general convener of the People’s Movement Against SARFAESI Act.

The movement that has been advocating for victims trapped in debt for the past decade has played an active role in numerous cases, compelling financial institutions to halt their inhumane recovery efforts. This movement spearheaded by a bunch of former Marxist-Leninist activists is the sole structured demonstration opposing the legislation implemented in 2002. Experts say the legislation managed to escape a nuanced debate because it was the time when national headlines were grabbed by the heightened communal strife following the Gujarat violence in February of that year.

“The SARFAESI Act marked the culmination of a series of banking ‘reforms’ initiated by the central government as part of the neoliberal policies of the 1990s. These reforms, aligned with recommendations from the BASEL committee on banking supervision — the primary global standard setter in banking sector — aimed to bolster global financial forces,” PJ Manuel, a lawyer who works with the People’s movement against SARFAESI act, told The Federal.

“Through the implementation of these neoliberal policies, the central government effectively weakened the nationalised banks and bolstered the power of private financial institutions. The government's stance is evident in the renaming of terms such as ‘debt relief’ to ‘debt recovery’, indicating a shift in approach towards prioritising the retrieval of debts rather than providing relief to debtors. The enactment of these draconian financial acts was integral to this agenda,” he said.

“The establishment of Debt Recovery Tribunals laid the groundwork, detaching them from the Indian legal and justice system. These reforms enabled Asset Reconstruction Companies to acquire the assets of the financially disadvantaged for minimal amounts. Anil Ambani’s Reliance ARC (Asset Reconstruction Company) was among the prominent companies operating in Kerala which had notoriously attached the small properties of the poor and marginalised before it wound up its operations owing to strong protests,” added Manuel.

Manuel emphasises that the core issue here is not just about non-performing assets or their recovery. He believes that this is merely serving the interests of the real estate mafia. Manuel points out the evident lethargy of banks in recovering non-performing assets worth thousands of crores from large corporates and individuals, highlighting the disparity in treatment.

The banks, on the other hand, maintain that they are acting according to the law, and it was only after the enactment of SARFAESI law that many people started repaying their loans.

In the case of Vishnu, who died by suicide in Kanjanai, the South Indian Bank has issued a statement explaining this.

“The bank has been most lenient and considerate towards the borrower’s request for settlement of the long outstanding dues for the last 8 years and has not dispossessed the party till date. The bank had even agreed for a one-time settlement of the account with a concession of more than Rs 5 lakh but the same was not paid by the party,” read the statement.

The bank also refuted the allegation of serving any notice to the borrower.

However, Vishnu's family refutes this claim, asserting that it was the rude conduct of the recovery officer that drew their son to suicide.

Due to the persistent protests and campaigns led by the victims and the people's movement, in 2017, the Kerala Assembly unanimously passed a resolution urging the centre to exempt plots not exceeding five cents with house from recovery under the SARFAESI Act. Although this holds limited legal significance, the banks did halt immediate recovery measures for some time. But over time, as the state government opted not to seize properties smaller than five cents in size, banks reacted by declining to extend loans to individuals falling within this category.

“The Left Democratic Front (LDF) government had included this issue in their manifesto for 2012, but they haven’t taken any action on it yet. The CPI(M) controls the Kerala bank and numerous other cooperative banks, and it’s evident that they too are enforcing the Act,” says Jenny VC.

Kerala Bank president Gopi Kottamurikkal, on his part, said there is not much that the bank can do about the problem.

“Our hands are tied. There are more than 6,000 default cases amounting to approximately ₹830 crore. We don’t have the powers to slash or write off the interest amount. We are well aware that may be 60% of the defaulters would be ready to pay the principal amount if the interest is slashed but NABARD won’t allow this,” Gopi said.

“Our NPA was 23.4% in the beginning of this year. We have brought it down to 17%, but NABARD insists on 7%, or else they would restrict our loans. Even though we are helpless in this regard, the state government has decided not to attach the property less than 5 cents,” added the bank president who is a senior CPI(M) leader.

Doubly exploited

Besides facing the harsh actions of financial institutions under draconian laws, individuals who own only one or two cents of land are often deceived by agencies and individuals offering loans in exchange for mortgaging their property. These vulnerable individuals end up experiencing double exploitation as a result.

Seventy-year-old Karthiayani of Irumpanam in Ernakulam is one among several such people suffering across the state.

“We were in debt because of our daughter’s wedding and needed ₹2 lakh. When my husband and son went to get the money, this agent had us sign some papers, but he tricked us. He transferred our property in his name, took a loan of ₹10 lakh against it, and only gave us ₹2 lakh,” claims Karthiayani.

“They often come here and collect the amount or we remit the amount in an office in the nearby town. We were not getting any receipts for the repayment we made either. We were paying back what we thought was ₹2 lakh, but when the bank came to collect, they said it was ₹10 lakh. That’s when we realised we’d been conned. Now, I hear that this same guy has deceived many others also,” she said.

“Now, with an eviction notice served, we’re scared they might kick us out of our home any time. My children are daily-wage labourers, they do not have the means to rent a place. We are ready to repay the amount we had with fair interest, but how can I repay the huge amount that I had not even taken? The only option before us is to end our lives taking some poison or so,” she said.

Leela Krishnan of Mulamthuruthy has a similar story to tell. “Thirteen years back, I borrowed ₹3 lakh from Mulamthuruthy bank to construct my home. Unfortunately, shortly after, my husband fell ill, and I also faced health issues, which made it difficult for us to repay the loan entirely. Recently, we noticed a publication in the newspaper stating that our house is at risk of being seized due to non-payment,” Leela said.

Ali Hyder, a Malayalam journalist who has produced a couple of short documentaries about SARFAESI victims, contends that the state holds responsibility for the debt traps and even deaths of these individuals. He argues that societal factors play a crucial role in shaping an individual’s financial circumstances, and thus, the state should be accountable for addressing these issues.

“I met as many as five families in a single colony in Irumpanam, Ernakulam, who fell into a debt trap after taking loans for home construction and the weddings of their daughters. Most were from the lower class and resorted to begging for loans as a last resort. Despite their efforts, many struggled to repay the debt, with some managing to repay the principal but still burdened by outstanding interest. Disasters like floods, COVID, and government reforms such as GST and demonetization exacerbated their situation, leaving them stressed and an inferiority complex due to their indebtedness. Additionally, urban development dislocated many, forcing them out of cities to rural areas," Hyder told The Federal.

The People’s Movement against SARFAESI Act has previously organised various protests, including election boycotts, but is now gearing up for a larger campaign ahead of the upcoming Lok Sabha elections. The group is urging all mainstream political parties to include the abolition of the SARFAESI Act in their election manifestos.

They claim to have reached out to major political parties such as the Congress, CPI(M), and CPI through letters. So far, they have received a somewhat positive response only from CPI.

Manuel states that they will evaluate the responses from political parties and decide on the future direction of their protest accordingly.