Imagine waking up to find the bank you took your home loan out with has been restricted, merged with another lender or, in the worst case, shut down. Your first response may be one of relief: So does this mean I no longer need to pay my EMI?
In short, the answer is no.
Your lender’s bankruptcy does not make your loan disappear. The obligation to pay is still there and not knowing the legal process could leave you with a ruined credit score, penalty charges or even the risk of losing your property.
Your Loan Does Not Go Away If The Bank Fails
A loan is a legal agreement between the lender and the borrower. A bank that gets into financial trouble doesn’t just lose its assets, including its outstanding loans. Instead, they are generally transferred to another bank, an asset reconstruction company (ARC) or another institution under the supervision of the Reserve Bank of India (RBI) or through an approved resolution process.
This means that, no matter who owns your loan, your liability to repay it remains exactly the same.
Should You Continue To Pay EMI?
For example, if a bank were to suddenly close down or be put under regulatory restrictions, the borrowers may not know where to send their payments for some time.
Finance experts advise borrowers not to panic but also not to assume that EMIs have been waived off forever. In case of a temporary disruption of payment systems, wait for official communication from the bank, the RBI or the new institution to take over the loan. Once the repayment instructions are given, start repaying EMIs immediately.
If you do not make payments without official instructions, your account may be considered overdue when operations resume.
Why Missing EMIs Can Be Costly
Many borrowers have a misconception that if the lender is in trouble, they will not be affected by delayed EMIs. In practice there can be consequences for missed payments.
Any unpaid dues may be reflected in your loan account when repayments start. If you do not pay, it will affect your credit history and CIBIL score, and this can affect your chances to get a loan or credit card in the future.
It doesn’t matter who owns your loan; a healthy repayment record is still important.
What Happens After 90 Days Of Non-Payment?
As per RBI’s Income Recognition and Asset Classification (IRAC) norms, an account will be classified as a Non-Performing Asset (NPA) if a borrower continues to default on loan instalments for 90 days. The timeline is longer for some overdraft accounts.
When an account turns into an NPA:
- Default is reported to credit bureaus.
- Your credit score could suffer a major blow.
- The lender can initiate recovery proceedings under the SARFAESI Act.
How Banks Recover Defaulted Loans
In the case of a home loan, the recovery is carried out within a legal process and not by instant seizure of property.
Step 1: 60-Day Demand Notice
If the account is termed as NPA by the creditor, the notice is sent to the debtor under the law, S. 13(2) of the SARFAESI Act for demand for payment of dues within 60 days.
The borrowers shall also have the right to raise objections or make representations and the lender shall be bound to consider and respond to the same within the stipulated period.
Step 2: The ownership of the property
If the dues are not paid within the period of notice, the secured property may be taken symbolic or physical possession of by the lender, pursuant to Section 13(4). The notice of possession must also be published in newspapers, and, if necessary, assistance can be taken from a magistrate.
Step 3: Auction and Valuation of Property
The lender must have the property valued by an approved valuer and set a reserve price before it is sold. Generally, the sale is done through public auction or e-auction after issuing a sale notice of 30 days to the borrower.
If the first auction fails, another auction can be held only after a new notice.
Is It Still Possible to Save Your Property?
Yes. Under the law, borrowers have several opportunities to halt the sale of their property.
If the recovery proceedings are already underway, the borrower can halt the process by paying the overdue dues, applicable interest and charges before the auction sale is legally concluded.
The first missed EMI and auction can’t be less than about 105 days apart, but in practice the process takes much longer because of procedural requirements and legal safeguards.
What Borrowers Should Keep In Mind
If a bank goes bankrupt, your loan doesn’t just dissolve. Even if the loan account is transferred to another institution, your repayment obligation is not extinguished. The best thing to do is to stay tuned to official announcements, keep a record of your payments and restart EMIs once the instructions for repayment are clear.
If you are struggling to make repayments, get in touch with the lender or whoever is managing your loan immediately rather than just stopping payments. The faster you move, the better for your property and credit profile.
Also Read: Missed July 31 ITR Deadline? These 5 Hidden Costs Could Hurt More Than Rs 5,000 Late Fee
Priyanka Roshan is a business writer and assistant editor at the NewsX website who tracks everything from stock market swings and corporate earnings to personal finance trends and policy shifts. Known for turning fast-moving business developments into sharp, reader-friendly stories, she combines speed, accuracy, and a data-driven approach to break down complex financial news for everyday audiences.
With over 9.5 years of newsroom experience, Priyanka has worked with leading media organisations, including Bussiness, Times Now, and Ping Digital, covering diverse beats such as business, politics, technology, auto, travel, sports, and the world. From live breaking news desks to SEO-led digital storytelling, she specialises in creating engaging content that keeps readers informed without overwhelming them.
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