Struggling with loan EMIs? Here are your legal rights as a borrower in India

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You may miss loan EMIs due to unemployment, sickness, or any other cash shortages. If you are unable to pay off your home loan, personal loan, or car loan, you need to know that Indian laws provide certain relief and protection to you as a borrower. Banks and institutions have to follow due procedure before taking any legal or recovery action.

RBI guidelines bar seizure or harassment per se

According to Reserve Bank of India (RBI) guidelines, banks are required to follow a formal procedure before recovery. If there has been a default in an EMI, the lender is required to issue reminders and notices but cannot immediately classify your account as a Non-Performing Asset (NPA). The loan account typically becomes an NPA after 90 days of default. Coercive recovery practices are also disallowed by the RBI, and banks need to treat recovery agents under regulated conduct guidelines.

The borrowers must be offered restructuring or moratorium facilities

Financially distressed borrowers who are genuinely stressed can seek a loan restructuring. This may be through restructuring EMIs, tenure extension, or a short-term moratorium on payment. Restructuring facilities were extended in the past COVID-19 pandemic, and banks can even today offer case-by-case relief. You have to approach the bank in writing and present your case with supporting documents such as medical bills or termination letters.

SARFAESI Act and your rights in recovery of assets

If the default is quite large and the lender decides to recover under the SARFAESI Act, they have to give you a 60-day notice before they can take possession of your property. You may plead your case within that period, and the lender is obliged to hear your pleas. If a dispute still persists, you can go to the Debt Recovery Tribunal (DRT) for redressal. Significantly, no property can be seized into possession by force without giving a reasonable hearing to the borrower.

Your credit rating will be hit—but legal action is possible

Though default on EMIs will affect your credit score, civil action through courts is not imminent or immediate. The lender may sue for civil recoveries, but you can pay or make arrangements even in default. Banks are also bound by the Fair Practices Code, and any attempt at harassment or intimidating the borrowers—especially at odd hours during the day—can be lodged with the bank grievance cell or with the RBI Ombudsman.

Legal protection can provide you with time and perspective

Defaulted EMIs should not be intimidating and there are abundant legal shields available to borrowers. From formal notice to objection right or the possibility loan restructuring, there are plant of actions that can save you from the stress. Negotiate with your lender, seek professional financial guidance, and familiarize yourself with your RBI and SARFAESI rights before taking the next step.

FAQs

Q1. Can the bank take possession of my house if I miss a few EMIs?

No. If you are two EMIs overdue, reminders will be sent by the bank and your account will be shown as a Special Mention Account (SMA). The loan is classified as a Non-Performing Asset (NPA) only if it is 90 days overdue. Even that, the lender will have to provide you with 60 days' notice before taking possession under SARFAESI.

Q2. What should I do if I lose my employment and shall be unable to service my loan for some time?

You must notify your lender at once and seek restructuring. Banks can offer temporary relief through EMI deferment or tenure extension, depending on your case and papers.

Q3. Can recovery agents harass or threaten me?

No. RBI also expects recovery agents to follow a code of conduct and they cannot harass, abuse or visit your house at odd times. If this happens, you can file a complaint to your bank and to the RBI Ombudsman.