File a complaint with the bank’s grievance officer; escalate to the ombudsman or consumer court if unresolved
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Bank customers must know their rights and regulatory guidelines on loan recovery. (Photo: Shutterstock)
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Noida resident Anuj Singhal, 35, found himself in a difficult financial situation when his business began to flounder, leaving him unable to pay his car loan EMIs. That marked the beginning of his ordeal with recovery agents. “They stand outside my house for hours, raising a ruckus. They also attempt public shaming by informing every passerby about the default,” says Singhal, who requested that a fictitious name be used for this story.
Despite stringent guidelines from the Reserve Bank of India (RBI) on how recovery agents must conduct themselves, and courts penalising leading banks for their agents’ misconduct, harassment of borrowers continues unabated.
The problem could escalate in the coming months. Banks are facing increasing stress in their unsecured loan portfolios and, in response, are hiring more (outsourced) recovery agents, according to a recent story by Business Standard. This development points to a higher likelihood of aggressive recovery tactics, leaving defaulting borrowers under greater pressure. Instead of succumbing to intimidation, customers must know their rights.
RBI guidelines
The RBI took note of rising complaints against banks employing coercive methods to recover loans and, on April 24, 2008, issued comprehensive guidelines to regulate recovery agents’ conduct. It has issued several follow-up notifications in this regard.
“It covers areas like fair practice code, harassment prevention, maintaining privacy and confidentiality, issuing notice of default, and so on,” says Animesh Singh, partner, Fiducia Legal.
ALSO READ: Finance Ministry urges DRTs, banks to expedite loan recovery processes
Over the years, these guidelines have evolved to include more detailed instructions. “Now, they have evolved into specific requirements on disclosure, training, avoiding social humiliation and intrusion into privacy, calling before 8 am and after 7 pm, and so on,” says Sugandh Saxena, chief executive officer, Fintech Association for Consumer Empowerment (FACE).
Boundaries set
The RBI has laid down explicit instructions for how recovery agents should, verbally or in writing, interact with borrowers.
“The customer’s privacy and social dignity must be protected,” says Saxena.
In addition, the RBI mandates that banks carefully select and adequately train their recovery agents. (In practice, banks hire third-party agencies that employ agents.) “The guidelines say that banks would be accountable for any complaints against the recovery agents,” says Singh.
Recovery agencies cannot be assigned to a case if there is an ongoing dispute between the borrower and the lender. Such disputes must first be resolved or dismissed.
Banks are required to display the list of recovery agencies on their websites and inform borrowers in advance about the details of the agency assigned to their case. Recovery agents must present an authorisation letter and the bank’s notice when approaching borrowers.
Borrowers nearing default should familiarise themselves with the RBI’s guidelines. “Many customers are already under a lot of stress and tension when they are on the verge of default. Then they feel further harassed when recovery agents employ strong-arm tactics,” says Ramamurthy.
Proactively engaging with lenders can also help borrowers avoid recovery agents altogether. “Explain your issues to the lender and get the loan restructured, thereby pre-empting the involvement of recovery agents,” says Ramamurthy.
Redress mechanisms
If borrowers feel threatened by recovery agents, they should immediately file a police complaint.
The RBI guidelines require banks to establish a grievance redressal mechanism. Borrowers experiencing harassment should first approach the bank’s grievance redressal officer. If the bank fails to act, borrowers can contact the banking ombudsman. “Every region has its own ombudsman, and their contacts are available on the RBI’s website,” says Ramamurthy.
For further recourse, Singh suggests taking legal action. “If all else fails, customers can file a case in a consumer forum – district, state or national – against the bank for deficiency of service. There have been many cases in which the consumer forums have awarded compensation to the customers and penalised banks for the actions of recovery agents,” says Singh.
Dos and don’ts for recovery agents
Recovery agents must not resort to intimidation or harassment of any kind, whether verbal or physical, during debt collection efforts
They must avoid acts intended to publicly humiliate debtors or intrude upon the privacy of their family members, referees, and friends
They must refrain from sending inappropriate messages via mobile or social media platforms
They must not make threatening or anonymous calls to borrowers
They must avoid persistently calling borrowers or contacting them during prohibited hours (before 8 am and after 7 pm)
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