It could be just a matter of time before banks that use agents who prefer strong-arm tactics to recover loans from defaulting borrowers mend their ways. Last November, the Reserve Bank of India (RBI) came out with a set of guidelines on the method of recovering bad loans through agents and invited comments on the proposals. Last week, the banking regulator released the second draft of guidelines on recovery agents .
It has proposed that banks, before employing agents or agencies, should carry out a due diligence process and ensure proper verification of the antecedents of the agents through the police and other sources.
While giving the contact details of borrowers to their recovery agents, banks should also inform the borrowers that this is being done to ensure that due notice has been given to them about the recovery process. Also, the agents should carry an authorization letter, containing their contact, and the recovery notice from the bank to the borrowers. If the bank changes its agent during the recovery process, the new agent should also carry an authorization letter from the bank. RBI expects banks and borrowers to maintain adequate proof of calls or messages sent by the agents.
The central bank recommends that borrowers should be able to complain and express their grievances, if any, about recovery agents to banks. The banks should not forward such complaints to agents until these have been redressed.
Banks usually give huge incentives to recovery agents. The new proposal says the agreement between the banks and the agency or agents should be such that it doesn’t induce the agents to use “uncivilized means” for loan recovery.
In future, all recovery agents may have to undergo a mandatory training and certification process before they can undertake the business of loan recovery. Banks can get in to an arrangement with the Indian Institute of Banking and Finance or other such institutes for training agents. RBI has also recommended that the terms of repossession of the asset for which a loan has been given should be clearly stated in the agreement with the borrowers. So, the next time you decide to take a loan, ensure that the loan agreement contains details about the notice period for repossession, the procedure, the circumstances under which such notice can be waived, the process of sale or auction of asset and the procedure for giving repossession by the bank.