Banking Central | Lenders should practise what they preach on customer protection

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26 Aug, 2025 12:21

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Of late, there has been a rise in the number of cases where recovery agents representing lending institutions harass the borrower on payment default. These reports emerge from all category of lenders, starting with unauthorised money lending apps to established big private lending institutions. These reports have, logically, triggered action from the banking regulator.

Last week, the RBI imposed a penalty of Rs 2.5 crore on Bajaj Finance for violation of rules pertaining to recovery and collection methods.

The quantum of money may not be big here but what should be noted is the message that the regulator has clearly spelt out for the firm and other companies.

The RBI said Bajaj Finance failed to ensure its recovery agents did not resort to harassment or intimidation of customers as part of its debt collection efforts. There were also persistent/repeat complaints about recovery and collection methods adopted by the company, the RBI said.

The problem of customer harassment is widespread and needs to be addressed at a systemic level. It wasn’t long ago when reports of suicides came from Hyderabad following customer harassment by unauthorised consumer digital lending apps.

Why do such events recur? A senior banker told me these are ‘part and parcel of the game’. Lenders are under constant pressure to recover money and often give a freehand to the third party agents hired to do the job. But, a counter-question arises: if the recovery agents resort to unethical practices—contacting customers at odd hours and engage in public shaming, how are they different from local goons and local moneylenders? Isn’t this the responsibility of the institution to keep a check on their staff resorting to such tactics? The RBI’s message to the lenders is crystal clear in this context.

At a broader level, the RBI has been attempting to bring in customer fairness and discipline among banks and NBFCs through various channels. There have been several committees were appointed on aspects of customer service and customer protection in banks from time to time, including the Talwar Committee (1975), the Goiporia Committee (1990), the Tarapore Committee (2004), the Sadasivan Working Group (2006), and the Damodaran Committee on Customer Service (2010). The importance of consumer protection was also highlighted in the Committee on Financial Sector Reform chaired by Dr Raghuram G. Rajan. Through a Charter on Consumer rights, it released a few years ago, the central bank has stressed on five key points. (i) Right to Fair Treatment; (ii) Right to Transparency; Fair and Honest Dealing; (iii) Right to Suitability; (iv) Right to Privacy; and (v) Right to Grievance Redress and Compensation. Time and again, the RBI has been stressing the importance of ‘fair treatment’ but such calls have largely fallen in deaf ears.

Most banks and NBFCs have a code of conduct published on their websites prominently on customer protection and complaints management. But, that isn’t enough. How the bank/NBFC staff treat their customers should be reviewed by the organisations on a routine basis and customer feedback needs to be assessed to ensure that the promised fair practice code is operational in real sense. It is important that these institutions practise what they preach.