RBI Plans Stricter Norms to Curb Abusive Practices by Loan Recovery Agents
RBI Plans Stricter Norms to Curb Abusive Practices by Loan Recovery Agents
The Reserve Bank of India (RBI) has proposed comprehensive guidelines to regulate the conduct of loan recovery agents and bank employees involved in debt collection, aiming to prevent harassment and intimidation of borrowers. The draft guidelines, released on Thursday, emphasize that neither banks nor their agents should adopt coercive or aggressive methods to recover dues.
Under the new proposals, actions such as using abusive language, sending inappropriate messages through mobile or social media, making excessive calls, or contacting borrowers outside prescribed hours will be classified as unacceptable behavior. Threatening or anonymous calls, acts of intimidation, public humiliation, or any intrusion into an individual’s privacy are explicitly prohibited.
The RBI has suggested that banks incorporate these norms into their internal policies, including clear punitive measures against recovery agents who fail to comply. This step comes against a backdrop of concerns over aggressive recovery practices, reminiscent of the late 2000s when some private banks faced criticism for coercive loan collection tactics. In a notable case in September 2022, Mahindra & Mahindra Financial Services was instructed by the RBI to halt recoveries through external agencies following an alleged death linked to recovery efforts, a restriction lifted four months later.
The draft guidelines cover commercial banks, small finance banks, payments banks, non-banking financial companies (NBFCs), mortgage lenders, cooperative banks, regional rural banks, and local area banks. The RBI has invited public comments on these proposals until March 6, with implementation slated from July 1.
Banks will be required to formulate a formal, board-approved policy detailing the engagement of recovery agents. This includes eligibility and due diligence criteria, a code of conduct, performance evaluation standards, periodic inspections, and procedures for taking possession of secured assets. Agencies must verify the antecedents of their staff before engagement and periodically thereafter.
Additionally, recovery agents must be certified by the Indian Institute of Banking and Finance (IIBF) after completing a designated training program, or by any other institute affiliated with IIBF. For microfinance loans, recovery or collection should primarily occur at designated meeting points agreed upon with borrowers. Visits to the borrower’s residence or workplace are permitted only if the borrower fails to attend the designated location for two or more consecutive occasions.
Experts note that in microfinance, collections typically occur at joint liability group (JLG) meetings. Field visits to residences are an exception reserved for delinquent cases. Jiji Mammen, executive director and CEO of the microfinance industry body Sa-Dhan, emphasized that RBI has consistently advocated for central collection points and limits home visits strictly to situations where borrowers are non-responsive.
The guidelines also define permissible hours for contact, restricting calls or visits to between 8 am and 7 pm. Borrowers’ specific requests to avoid contact at certain times are expected to be honored. Banks are tasked with implementing a structured mechanism for registering and resolving borrower complaints.
With these measures, the RBI aims to professionalize the loan recovery process and ensure that recovery agents function within a well-defined framework, eliminating informal or abusive practices.
