The lenders, in attempt to recover the dues from the borrowers, often employ recovery agents with an aim to threaten and harass the borrower in repaying the dues. This has led to a serious rise in the number of disputes and litigation against the banks and has seriously hampered the reputation of the banking sector as a whole. The Reserve Bank of India in order to curb this erroneous practice of the lenders have enunciated guidelines on recovery agents engaged by banks.
As per the Master Circular on Loans and Advances – Statutory and Other Restriction dated July 1, 2011, the term ‘Agent’ includes agencies engaged by the lender and the agents/employees of the concerned agencies. The Master Circular stipulates as follows.
Verification and Training of Recovery Agents
Firstly, the banks, while engaging recovery agents, should have a due diligence process in place and the banks should carry out carry out verification of the antecedents of their employees, which may include pre-employment police verification, as a matter of abundant caution.
It is also advisable that banks provide training to recovery agents appointed by them to handle cases with care and sensitivity and deter from calling at odd hours, threatening the borrower, and respect his/her right to privacy. RBI has requested the Indian Banks’ Association to formulate, in consultation with Indian Institute of Banking and Finance (IIBF), a certificate course for Direct Recovery Agents with minimum 100 hours of training. Once the above course is introduced by IIBF, banks should ensure that over a period of one year all their Recovery Agents undergo the above training and obtain the certificate from the above institute. Further, the service providers engaged by banks should also employ only such personnel who have undergone the above training and obtained the certificate from the IIBF. Keeping in view the fact that a large number of agents throughout the country may have to be trained, other institutes/ bank’s own training colleges may provide the training to the recovery agents by having a tie-up arrangement with Indian Institute of Banking and Finance so that there is uniformity in the standards of training. However, every agent will have to pass the examination conducted by IIBF all over India.
Intimation to Borrower
Secondly, it is advisable that when the lenders transfer the application of the borrower for recovery of dues to the recovery agency the bank should inform the borrower of the details of recovery agency firms/companies that are appointed by the banks. Wherein, the borrower is not notified of the recovery agency, the recovery agent shall bear with him a copy of the notice, authorization letter from the bank and an identification card issued to him by the bank while visiting the borrower. The authorization letter should bear, among other details, the telephone numbers of the relevant recovery agency. Banks should also ensure that there is a tape recording of the content/text of the calls made by recovery agents to the customers, and vice-versa, and it is the duty of the bank to intimate the borrower of such recordings.
Furthermore, the master circular dictates that wherein during the process of recovery there is any change in the recovery agent/agency appointed by the banks, it is the duty of the bank to notify the borrower of such change.
However, where a grievance or complaint has been lodged by the borrower, the banks are advised not to forward the cases to recovery agencies until the complaint has been addressed and duly acted upon by the banks.
Malafide practices of the bank
Thirdly, the Master Circular suggests that the banks should do away with the practice of enforcing stiff targets and incentivizing agents to recover money, since the same promotes and encourages adoption of uncivilized, unlawful and questionable behaviour or recovery process.
Use of Credit Counsellors and Lok Adalats
Lastly, banks are encouraged to have in place an appropriate mechanism to utilise the services of the credit counsellors for providing suitable counselling to the borrowers where it becomes aware that the case of a particular borrower deserves sympathetic consideration.
The Master Circular also directs the banks to the Supreme Court of India’s observation that loans, personal loans, credit card loans and housing loans with less than Rupees ten lakh can be referred to Lok Adalats.