Last week, in Jharkhand's Hazaribag district, a farmer's pregnant daughter was allegedly run over by loan recovery agents of Mahindra Finance. Reports suggest that she was protesting against confiscating of the family's tractor for defaulting on payment. The company's top management subsequently offered cooperation on all investigations and vowed to relook recovery practices using third party collection agents.
Yet again, the Hazaribag incident highlights the dark world of recovery agents. This has been an ongoing issue. Several cases involving harassment by loan recovery agents have been reported from across the country in the last several years. In most such cases, recovery agents are people appointed by originating companies (lenders) who then use strongarm methods to recover dues from the borrower. Recently Moneycontrol had published a multipart series to highlight the issue of harassment by loan recovery agents.
Companies publicly deplore strong-arm tactics but the fact of the matter is such agents have the silent approval of lenders to meet targets. The Reserve Bank of India (RBI), time to time, had issued directions to banks on recovery agents and the code of conduct needed for recovery practices.
In August this year, the RBI barred recovery agents from resorting to intimidation of borrowers as well as calling them before 8 am and after 7 pm. While issuing additional instructions to regulated entities, the RBI said it has observed that recovery agents are deviating from its instructions with regard to recovery pratices. "It is advised that the REs (regulated entities) 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," the RBI said in a notification.
RBI has issued guidelines from time to time as part of the Fair Practices Code (FPC), and has already advised companies that they should not resort to intimidation or harassment of their borrowers, calling them on phone at odd hours in their debt collection efforts, among others. The banking regulator said it took into account certain recent developments including growing incidences of unacceptable practices followed by RAs (recovery agents) to issue these additional instructions to lenders.
But, unfortunately these norms are largely an iteration of the earlier norms and the key lies in implementation at the company level. While the latest RBI directions are a step in the right direction but the problem lies with implementation on the ground. In the past too, the RBI has reminded banks about the need to ensure fairness in customer transactions but these warnings have fallen on deaf ears.
Many a time, harassment happens due to internal pressure to recover the money lent and when third party agencies are involved in the recovery process. To make sure financial services entities including cooperative banks and non-banking companies follow the directions in letter and spirit, the regulator needs to ensure strict punitive measures against wrongdoers and insist that banks must have a board-monitored process to ensure implementation of the fair practice code.
These RBI directions can only work on the ground if boards of individual companies take note of the rules and put in place a mechanism to monitor actions of recovery agents very closely. Companies must monitor complaints from borrowers on recovery agents and act immediately. Third parties who flout the rules of the fair practice code must be brought to the law. Mere preaching of good practices won't do any good.(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.)