You will not find word "symbolic possession" in the Indian law, but this self-invented term is causing huge losses to public sector banks. It is a tool rampantly used to push away prospective buyers of defaulters' properties and helping the defaulter get the same property for a lower price.

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When borrowers fail to repay the loan, after a 90 days' notice period, banks declare the loan as a non-performing asset. They then take possession of properties offered as a collateral for auction under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest, or Sarfaesi Act, 2002.

To secure their loans, banks take mortgaged property from borrowers with clear and marketable title to recover their money in case of defaults. Under the provisions of Sarfaesi Act, 2002, banks may take over the physical possession of the assets and sell them to recover their dues.

But in practice, the banks take only 'symbolic possession' in most of the cases, and advertise the assets for sale. The properties are left in the possession of the borrower.

This keeps the prospective buyers away as they fear that when the bank is not able to take the possession themselves, how they will deliver them the property.

B P Singh, chief valuer, Mortgage Valuation Experts (MVE), who closely works with big banks, said that symbolic possession is giving a scope of corrupt practice of settling banks' dues with sacrifice by the bank on the pretext of no buyers of the property.

"In such cases, full market value is not offered against the property, and properties are either sold at lower value or banks settle their dues with the borrower with huge sacrifice (write-off)," Singh told DNA Money.

"Symbolic possession is a well-known device in law and the basic underlying principle that only that right can be transferred that has been vested," said Harsimrat Randhawa, advocate, Supreme Court.

According to the Sarfaesi Act, 2002, banks may take over the physical possession or control of the mortgaged asset and can sell or transfer the possession to the buyer without the intervention of any court or third party. In case of any threat of violent resistance from the borrower, banks take help of the Chief Metropolitan Magistrate (CMM) or District Magistrate (DM) of the area for taking over the physical possession. CMM or the DMs are duty bound to take the physical possession of the asset for the banks.

Manish Mohan, advocate, Supreme Court said,"The problem arises with lack of integrity within the banking system due to which such property are sold at an undervalued price with under-the-table transactions. The remedy against such auctions at an undervalued price is that the bank officials involved be immediately taken off similar duties and an inquiry be conducted into the reasons for undervalued auction in which the prevailing market rate of the area is also considered. Till the time such an inquiry is complete, the concerned bank officials should not be allowed similar job profile."

According to the Property Act, a property seller is liable to inform about liability on the property like property or water tax, lease rent and electricity dues, but in most of the cases, banks do not reveal any such liabilities in their auction advertisement. Sometimes these liabilities are very high in comparison to the value of the asset.

"The symbolic possession is preferred by the banks for the reason that it gives demonstration effect. It causes mental and social pressure, but times have changed, and a person who is deliberately and wilfully defaulting in making his payments, is not afraid of any such action," said Sumit K Batra, a corporate lawyer.

Banks internal reports of the top nine Indian banks, including the private ones, show they wrote off Rs 68,064 crore against bad debts in fiscal 2017, but recovered only Rs 35,469 crore of bad loans.

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HUGE LOSSES
Banks do not reveal liabilities on properties, which can be very high in comparison to asset, in auction advertisements  
Top nine Indian banks, including the private ones, show they wrote off Rs 68,064 crore against bad debts in fiscal 2017, but recovered only Rs 35,469 crore bad loans.