RBI proposes ban on intimidation, abusive calls by loan recovery agents

Mumbai: The Reserve Bank of India (RBI) on Thursday proposed norms barring recovery agents from going too far in their pursuit of a defaulting borrower.

The regulator said that neither the bank’s employee, nor the recovery agent should engage in any harsh methods to recover dues. Use of abusive language, sending inappropriate messages either on mobile or through social media, or excessively calling or calling outside the prescribed hours would be considered harsh.

The RBI proposals also bar threatening or anonymous calls, as well as acts of intimidation or harassment, including attempts to publicly humiliate individuals or intrude upon their privacy, among others.

The RBI also proposed that the banks’ internal policy should contain penal actions to be taken in case of non-compliant recovery agents.

Loan recovery has emerged as a contentious issue in recent years, bringing back memories from the late 2000s when private banks used coercive tactics for recovery. In September 2022, RBI had asked Mahindra & Mahindra Financial Services (Mahindra Finance) to stop recoveries through external agencies after the alleged death of an individual in the process. The restrictions were lifted four months later.

The RBI issued similar proposals for small finance banks, non-banking financial companies, mortgage lenders, and cooperative banks. These would come into effect from July, and the RBI has sought comments on these proposals till 6 March.

“A bank shall put in place a policy on recovery of loans, engagement of recovery agents for recovery of loan dues and taking possession of security,” RBI said in the draft guidelines released on Thursday.

According to the regulator, the internal policy should cover aspects related to eligibility and due diligence criteria for engagement of recovery agents, code of conduct, performance evaluation standards, and inspection, among others.

The RBI said that banks will have to ensure that the recovery agencies it engages carry out verification of the antecedents of their representatives and employees at pre-engagement level and then periodically.

“A bank shall ensure that recovery agents engaged by it have obtained the certificate from Indian Institute of Banking and Finance (IIBF) after completing the training programme for Debt Recovery Agents offered by IIBF or any other institute having a tie-up arrangement with IIBF,” said RBI.

In fact, for microfinance loans, banks will have to meet the borrower at a designated place decided mutually. The RBI said that field staff can make collection or recovery at the place of residence or work of the borrower if the borrower fails to appear at the designated place on two or more successive occasions.

Experts said that microfinance payments are anyway collected at the centre meetings of joint liability groups (JLG). These are groups of borrowers who come together for small business needs.

“This has always been there and microfinance loans are collected at centre meetings. Only wherever there is some delinquency do the lenders and agents approach the residence of the borrower,” said Jiji Mammen, executive director and chief executive of microfinance industry body Sa-Dhan. “It has been the stand of RBI that collections need to be done centrally and residences can be visited only if the borrower does not turn up.”