A small dispute in Maharashtra’s Raigad district involving ICICI Bank Ltd throws new light on why strong-arm tactics of banks in recovering small loans has become an important issue for banking regulators as well as consumer grievance groups across India.
The Maharashtra State Consumer Disputes Redressal Commission, a quasi-judicial body, has charged ICICI Bank, India’s largest private sector lender, with resorting to “forging documents,” all to recover just Rs7,474 from a consumer in Raigad.
The state commission passed an order on 28 November in which Justice B.B. Vagyani and Justice P.N. Kashalkar asked the bank to take “stern action” against the “erring officers” and report back within two months. ICICI Bank’s general manager, corporate communications, Charudatta Deshpande, declined to comment for this story.
There is no indication that this incident is part of a larger problem involving such forgeries at ICICI. Nor is there any evidence that the behaviour at one branch of the bank was brought to the attention of higher-ups.
Still, ICICI has been among a slew of banks whose loan-recovery methods have come under sharp scrutiny and incidents such as these are only likely to put more heat on banks to adhere to certain accepted policies of recovering loans from individuals.
ICICI Bank attracted considerable attention in September when a customer committed suicide blaming harassment by recovery agents working on behalf of the bank. Though the bank did pay compensation to the family, the incident was widely used to illustrate the growing problem of strong recovery tactics by banks. Complaints have also been made against Citibank NA and HDFC Bank Ltd, though most banks say such incidents are isolated and not condoned by the management.
But, such incidents prompted the Reserve Bank of India (RBI), which regulates all banks in the country, to issue draft guidelines on 30 November about how banks should use loan recovery agents.
According to these proposed guidelines which have been published on the central bank’s website for public comments, banks will now have to give borrowers details of the recovery agent in case of a default. Recovery agents can call borrowers only from the number assigned by the bank. In case of repossession of assets, banks will have to give a notice period to customers and inform them about the procedure for the sale of property.
“With the help of RBI guidelines, we are trying to put in place a process where by we can reduce incidents of harassment by recovery agents,” says H.N. Sinor, chief executive of trade lobby, Indian Banks Association.
The RBI has asked banks to do due diligence before employing agents and also asked the Association as well as the Indian Institute of Banking and Finance to conduct a certificate programme for agents.
The latest ICICI case involves Needa Feroz Ghatte, a resident of Alibaug, who took a two-wheeler loan from the bank in 2004. She agreed to repay the loan in 36 equal monthly instalments but despite regular payments was asked by bank officials in April 2006 to pay double the amount due to the bank within a week, Ghatte claimed before the Commission. According to her statement, on the same day the bank also seized her vehicle.
Ghatte filed an appeal in the Alibaug district forum in May 2006. The forum passed a judgment in her favour. Consumer courts operate in three levels—national, state and district. Alibaug district forum is the third tier of the quasi-judicial machinery.
Mint couldn’t locate Ghatte and has no independent way to verify her claims.
ICICI Bank had challenged the Forum’s order with the state commission, saying Ghatte was a regular defaulter. It also produced at the commission a letter sent by the bank to Alibaug police station in May 2006, stating the borrower had defaulted in repayment of loan and “the bank as per their rights in terms of (the) loan...agreement wanted to take possession of the vehicle and therefore no complaint should be entertained by the borrower in the matter.”
The bank officials also sent a vehicle surrender agreement letter from Ghatte to the police station, though it didn’t have Ghatte’s signature.
The Commission ruled that bank officials submitted false evidence by submitting what they dubbed as a “forged” document suggesting to the police that Ghatte had voluntarily surrendered the asset (two-wheeler). The Commission also said the bank has acted “in high handed manner flouting all business norms and guidelines issued by Reserve Bank of India.”