If you thought only defaulters on car loans faced the prospect of running into threats and intimidation by "third-party agencies" (a euphemism for thugs), think again.

Home loan defaulters have started facing the music too, with the number of defaults and cheques that bounce on the rise.

Home loans: What to expect in 2005

Aggressive foreign and private banks are not only sending out people to intimidate those who default on their loan repayments but also securing non-bailable arrest warrants and property possession notices.

If a borrower defaults on his payments, the first step a bank takes is to make a phone call or send a "confidential" letter to the defaulter.

If the borrower chooses to ignore this gentle nudge, more calls follow. Finally, someone from a third-party agency knocks at the borrower's door -- and he does not always hesitate to adopt aggressive tactics to recover the dues.

There are cases of post-dated cheques bouncing and banks do know how to tackle the problem. Says Rajiv Sabharwal, chief operating officer, ICICI [Get Quote] Home Finance Company Ltd: "We are seeing cheques bouncing in home loans. We are taking legal action in such cases. Our collection mechanism is very effective."

The bouncing of cheques is a non-bailable offence under Section 138 of the Negotiable Instruments Act. Banks have even started getting people arrested for their cheques bouncing repeatedly.

According to data compiled by the Reserve Bank of India, bad loans in the housing industry as a percentage of the outstanding credit stood at 1.9 per cent on March 31, 2004.

Even the less aggressive public sector banks are seeing the number of their bad loans in home loans mount. "We are instructing several of our branch managers to upgrade bad home loan accounts now. The cases of bad loans are certainly rising. It is mostly seen in the case of self-employed borrowers, where the bank's assessment of the repayment capacity has gone wrong," said the general manager at a state-owned bank.

The public sector banks are trying hard to upgrade sticky home loan accounts. When the borrower misses a couple of equated monthly instalments, the bank gets into the act without losing time.

"In cases where there is a tie-up with the employer and the EMI is being debited from the salary account, we contact the employer directly and try to regularise the account. If the employer or the company is also our customer, there are higher chances of the account normalising," said a Bank of India official. BoI has gross non-performing assets of 2 per cent of its total housing loan portfolio.

Taking the legal route is the trump card that banks have. Several banks, including the State Bank of India [Get Quote], which has financed 650,000 homes, have started sending out legal notices for possession of property under the Securitisation Act, said officials. The law gives banks the power to sell the financed home and recover the loan amount.