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RBI tightens bolt on loan recovery agents appointed by banks, NBFCs, and others

One of the specific issues were related to the methods and practices being followed by these agents while undertaking loan recovery activities. (Bloomberg)Premium
One of the specific issues were related to the methods and practices being followed by these agents while undertaking loan recovery activities. (Bloomberg)

  • As per RBI, the regulated entities are the ultimate responsibility for their outsourced activities vests with them and they are, therefore, responsible for the actions of their service providers including RAs.

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The Reserve Bank of India (RBI) on Friday issued certain additional instructions to regulated entities (RE) who engage in outsourcing financial services. Through the new guidelines, the central bank addresses issues relating to recovery agents (RAs). As per RBI, the regulated entities are the ultimate responsibility for their outsourced activities vests with them and they are, therefore, responsible for the actions of their service providers including RAs.

The guidelines come after RBI observed that the agents employed by REs have been deviating from the extant instructions governing the outsourcing of financial services.

One of the specific issues were related to the methods and practices being followed by these agents while undertaking loan recovery activities.

Taking into account certain recent developments including growing incidences of unacceptable practices followed by RAs, RBI advised that the REs shall strictly ensure that they or their agents do not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the debtors' family members, referees, and friends, sending inappropriate messages either on mobile or through social media, making threatening and/ or anonymous calls, persistently1 calling the borrower and/ or calling the borrower before 8:00 a.m. and after 7:00 p.m. for recovery of overdue loans, making false and misleading representations, etc.

RBI said that the extant guidelines on permissible hours for calling borrowers on phone for recovery purposes are currently specified in respect of Housing Finance Companies and REs extending microfinance loans.

In its statement, RBI pointed out that the ultimate responsibility for their outsourced activities vests with them and they are, therefore, responsible for the actions of their service providers including RAs.

These instructions are applicable to all commercial banks including regional rural banks, co-operative banks, NBFCs, asset reconstruction companies (ARCs), and All-India Financial Institutions.

All commercial banks are local area banks, regional rural banks, and small finance banks excluding the Payments Banks. While All-India Financial Institutions include EXIM Bank, NABARD, NHB, SIDBI, and NaBFID. Further, housing finance companies are also included in NBFCs and are advised to follow the new instructions.

RBI has been addressing the issues related to recovery agents engaged by the REs like scheduled commercial banks, NBFCs, and other financial institutions from time to time.

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