There is difference between taking symbolic possession and actual possession. Symbolic possession means, the banker will issue one advertisement of possession notice in newspapers and then write on the walls of mortgaged property .... this property belongs to such and such bank no one shall transact with regard to sale of property without bank's consent etc. After that it takes time for them to issue sale notice and auction notice. It involves another 3-4 months time generally if the bank shows urgency. Otherwise it may take years also if the bank does not show urgency. To take actual possession of the property they generally take the help of District Magistrate or Chief Metropolitan Magistrate, Collector etc. It is not that the Authorized officer himself cannot do, but in practice no Authorized officer never succeeded in taking possession of any secured asset. Therefore, the assistance from DM, CMM etc becomes compulsory. Due to all these reasons, generally till the Auction is conducted it is more than a year from the date of Demand Notice. In the meanwhile if the borrower approaches court under Section 17 of sarfaesi act and gets stay, it will be further delayed by as long as the case is decided by court.
I am not saying all these to breed credit indiscipline but I feel from the side of banks also there should be some concern about banker-borrower relationship. The 90 day period to declare asset as NPA is too short to decide whether the borrower had become altogether untrustworthy and so to put him on notice to pay all the dues. Earlier, before securitization act came into being the relationship between banker and customer was based on business principles and banker used to perceive customer as consumer like a company wants to sell its good to a customer. Now it has become a relationship between police and thief after the passage of this Act. You release 3 crores loan to a borrower, and he puts that amount in business and it is decided with in 3 months whether he is defaulter eligible to be proceeded under sarfaesi act. And entire amount is demanded along with dues within 4-6 months from the date of release of loan. It is sheer non-sense I say.
My view is the bank's urgency to initiate sarfaesi proceedings should not depend on prudential norms of RBI but on the element of credit risk. If the borrower had covered the credit risk that bank is exposed to by 200 percent., then till the outstanding dues amount to 125 to 150 percent of the security offered, the bank should not initiate sarfaesi proceedings.
Somewhat deviation from the subject but relevant I want to say about Housing loans. When a borrower purchases house for Rs.30 lacs by applying for a loan of rs.20 lacs and giving the house as security, and repays 5 lacs and then defaults then the position of bank is that it has a security of 200 percnt for the outstanding dues. And house generally being real estate property, the value only goes up if it is an independent house (not a flat) because the plot value is involved in it. Then what is the risk for the bank to wait till the outstanding dues reaches up to 150 percent of the Security offered. It may be the case that a bank has outstanding dues of 25 lacs after three years and the market value of the house had increased to 40 lacs. What is the risk for the bank in it? It can get its money any time. Why governments do not allow people to experiment by taking a house (if it is a first house) by taking a loan from bank....after all housing for all is also the obligation of governments?
If they succeed in paying back, they will own a house. If they do not succeed the bank will not have any loss if it sells off the house when the outstanding dues reach 150 pc of the 200 percent security offered. Why harrass people with prudential norms and all when there is no loss for anyone in this and when it also serves the social objective of Housing for all?
This is not the way banks should function as it is happening now....ie. post-2002 securitization act.