RBI proposes tighter norms for recovery agents, bank employees; bars abusive language, blocking mobile phones: Details

The Reserve Bank of India (RBI) on Wednesday released revised draft directions proposing amendments to the 'conduct of regulated entities in recovery of loans and engagement of recovery agents.'

The central bank stated that lenders are not permitted to block or deactivate mobile phones if borrowers default on loans taken to purchase the devices.

Here's a list of loan recovery rules that the RBI mooted

1. The central bank has proposed stricter conduct norms for recovery agents and bank employees, according to ET Now.

2. It has also advised banks to implement a board-approved recovery and collection policy.

3. Banks have also been advised to compensate borrowers for losses arising from improper recovery.

4. The RBI has also proposed mandatory IIBF certification for recovery agents.

5. Banks will be required to disclose empanelled recovery agencies on websites and apps.

6. Before the first recovery agent's visit, banks will be mandated to notify the borrowers.

7. Banks must promptly inform borrowers about any change or termination of the recovery agency.

8. Additionally, banks cannot forward recovery cases if grievances remain unsolved.

9. Further, the banks will record recovery agent calls and retain data for at least six months.

10. The RBI has also barred incentives that promote harsh recovery practices.

11. The central bank has proposed safeguards to be followed before taking possession of the borrower's security.

12. Banks can now only disable financed devices after a 90-day overdue period.

13. The RBI has also mandated a 21-day plus an additional seven-day notice before restricting device access.

14. The banks will have to compensate borrowers of ₹250 per hour for wrongful blocking of the device.

15. The RBI has also mandated recovery agents to carry an ID and an authorisation letter.

16. The agents can make recovery calls and visits between 8 am and 7 pm.

17. Banks have been asked to set up dedicated grievance redressal for recovery complaints.

18. Recovery agents and banks cannot contact the borrower during bereavement or marriage events.

RBI issued draft guidelines in February

The draft guidelines for loan recovery agents were first announced in February, with the central bank proposing to restrain bank employees or recovery agents from using harsh methods towards loan recovery, The Hindu reported.

Additionally, the central bank stated that intimidating or harassing borrowers, guarantors, or their relatives, friends, or co-workers either verbally or physically, including acts intended to publicly humiliate them, will be classified as “harsh methods.”

According to the proposed rules, the recovery agents were barred from using minatory or abusive language, sending ‘inappropriate’ messages either on mobile or through social media, or making excessive calls to the borrower or guarantor.

The guidelines, announced during the last monetary policy announcement, came after the central bank found that recovery agents were using harsh measures. Following this, the RBI decided to issue comprehensive instructions on conduct-related matters in the recovery of loans and the engagement of recovery agents to all regulated entities.

To ensure responsible lending practices, all banks will be required to implement a policy governing loan recovery, the engagement of recovery agents for collecting loan dues, and the repossession of security.

According to the RBI, the policy should include provisions related to the eligibility and due diligence criteria for appointing recovery agents, the scope of permitted activities, the code of conduct, and performance evaluation standards.